Inflation drops to 2% target for first time in almost three years but still work to do, say experts

Inflation has fallen to the 2% target for the first time in almost three years, in what comes at a critical time for the UK government, down from 2.3% in May.

The Office for National Statistics (ONS) said consumer prices index (CPI) inflation fell for the first time since July 2021.

The figure sky-rocketed amid a cost crisis that at one stage reached a 41-year high of 11.1% in October 2022.

The latest fall means that prices are still rising across the country but at a much slower rate than in recent years.

Rishi Sunak told LBC Radio: ‘It’s very good news because the last few years have been really tough for everybody … But we’ve stuck to a plan, we’ve taken the action needed, it wasn’t always easy, but we’ve got there, and inflation is back to target.’

Financial markets have cut bets on an August rate cut following the latest data, putting the chance at about 35%.

The data comes at a crucial time, less than three weeks before the July 4 polling day and as the political parties home in on economic pledges in their manifestos.

Chancellor Jeremy Hunt said he hopes the Bank of England will now cut interest rates so mortgage costs can come down.

He said: ‘Now we have inflation down, taxes starting to come down and, hopefully soon, mortgages coming down as well.’

Liberal Democrat Treasury spokeswoman Sarah Olney said: ‘The hard truth is that millions of people won’t be feeling any better off today.’

Experts said that, despite the milestone for inflation, there is still work to do in bringing down prices throughout the economy.

The Bank is keeping a watchful eye on inflation in the services sector, which fell from 5.9% to 5.7% in May, but this was above forecasts as it remains stubbornly high.

It is one of the factors that has been partly responsible for staying the Bank’s hand in bringing rates down from their 16-year high of 5.25%.

Victoria Clarke, UK chief economist at Santander corporate investment bank, said: ‘We do not expect the Bank to cut rates [on Thursday].

‘Our base case has been for an August cut, but this will be reliant on these broader signals continuing to decisively soften over the next month’s data. As such, a risk of a later-than-August move is there.’

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