Inflation drops to Bank of England’s 2% target raising hopes of interest rates cut | Personal Finance | Finance


Inflation has fallen to two percent in the latest figures for the year to May 2024, raising hopes the Bank of England may start to cut interest rates.

The rate of the rise in prices has been dropping since it peaked in October 2022 at 11.1 percent.

Core inflation also fell from 3.9 percent in April down to 3.5 percent in May, according to figures from the Office for National Statistics.

The central Bank has a target to keep inflation at two percent, with the return to economic stability providing a boost for the hopes of Rishi Sunak’s Conservative Party to return to power after the General Election.

Dean Butler, managing director for Retail Direct at Standard Life, part of Phoenix Group, said: „This is a big moment for the UK economy as inflation meets the Bank of England two percent target for the first time since 2021.

„The US and the Eurozone are still sat above target, making the UK a positive outlier and adding to speculation that the Bank of England could move to cut interest rates later in the year.

„The US and the Eurozone are still sat above target, making the UK a positive outlier and adding to speculation that the Bank of England could move to cut interest rates later in the year.

„All in all, now seems a good time to take stock and consider how the changing economic environment could influence your finances and approach to saving.“

He encouraged Britons to always have six months of easy access cash as a buffer of emergency savings.

Despite the drop in inflation, many families are still struggling with rising living costs. Rebecca Florisson, principal analyst at the Work Foundation at Lancaster University, said most Britons are feeling poorer than when they voted in the last General Election nearly five years ago.

She said: „This is the first Parliament since 1955 where living standards have declined – attributable to wage stagnation alongside wider impacts of the Covid-19 pandemic, war in Ukraine and political choices.

„And for many workers the cost of living crisis is not over yet. Interest rates remain at their highest level for 16 years at 5.25 percent, which is creating a cost of housing squeeze for many private renters and mortgage holders – with low paid and insecure workers hit hardest.“

She said the new Government needs to do more to help struggling families. She commented: „The Household Support Fund – which has been a vital lifeline for those struggling to make ends meet – is due to expire at the end of September.

„The next Government must commit to continuing cost of living support for the most vulnerable households until April 2026 when the Office for Budget Responsibility forecasts real wages will have finally returned to 2008 levels.”

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