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UK inflation falls to lowest level in almost three years – but cost of living crisis is far from over

Prices rose at 2% in the year to May, the Office for National Statistics has revealed, down from 2.3% the month before

Inflation

Inflation is hitting the poorest households the hardest. Image: Unsplash

Inflation has hit the Bank of England’s target of 2% for the first time in nearly three years – but experts have warned that the cost of living crisis is far from over.

Prices rose at 2% in the year to May, the Office for National Statistics has revealed, down from 2.3% the month before.

Beleaguered prime minister Rishi Sunak has seized on the figures as “very good news”.

“When I became prime minister [October 2022] inflation was at 11%,” he said. “But we took bold action. We stuck to a clear plan and that’s why the economy has now turned a corner.”

However, campaigners and unions have urged caution. Inflation falling does not mean that the prices of goods and services are dropping – just that they are rising more slowly.

Overall prices have risen by 22% since July 2021, while energy prices have risen by 66% and food by 31%.

And the Bank of England is likely to hold the interest rate at 5.25% – the highest for 16 years – when it sets interest rates on Thursday.

James Smith, research director at the Resolution Foundation, described the drop in inflation as “welcome”, but stressed that it would be no silver bullet.

“The legacy of a long period of very high inflation means there is unlikely to be much of a feel-good factor among families, as they continue to struggle with the higher cost of essentials,” he said.

“And while headline inflation is back to normal levels, domestically-driven services-price inflation remains elevated. This inflation will worry the Bank of England, and may give pause for thought when it comes to cutting interest rates.”

Services inflation – the amount that the cost of services are rising by – reached 5.7% in May.

Trade Union Congress general secretary, Paul Nowak, said that the fall in inflation masked three years of eye-watering price increases.

“Food and energy bills have surged. Rents and mortgages have skyrocketed. And real wages are still worth less than in 2008,” he said.

TUC analysis published this morning shows that unsecured household debt will rise by a “record” £1,660 this year as families continue to struggle with cost of living.

The Institute for Public Policy Research said preventing inflation shocks in future will require investment in the green transition.

“Falling inflation expectations by households and a cooling labour market suggest that the current inflation fight could be in its last round,” Carsten Jung, senior economist at IPPR, said.

“To further ease inflationary pressures and grow the economy, whoever wins the next election must urgently address the dire labour market situation, where a record number of people have left the labour force, often due to illness.

“Moreover, only huge investments in the clean energy transition can shield us from future inflation shocks from international oil and gas markets.”

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