The consumer prices index rose by 2 per cent in the 12 months to May 2024, the lowest point it has been in three years.
Data from the Office for National Statistics showed this represents a fall of 0.3 percentage points on April when inflation stood at 2.3 per cent and achieves the Bank of England’s inflation target of 2 per cent.
This fall was fueled by lower food prices, which fell this year but increased last year.
Additionally, the largest upward contribution came from motor fuels, with prices rising slightly this year but falling a year ago.
Hargreaves Lansdown head of personal finance, Sarah Coles, said: “Falling food inflation was the most significant drop that fed into the figures, and prices were up just 1.7 per cent in a year.
“It’s a world away from the high point of 19.2 per cent, and is the result of food inflation easing for 14 consecutive months.”
Additionally, core inflation was found to have risen by 3.5 per cent in the 12 months to May 2024, a slight decrease from the 3.9 per cent recorded in April.
Quilter Investors investment strategist, Lindsay James, said: “After a long and arduous period, UK inflation has finally returned to the coveted 2 per cent target set by the Bank of England.
“Given inflation peaked at 11 per cent two years ago, this is a big occasion for a UK economy that appeared blighted by inflation worse than comparable peers.”
However, she cautioned that the joy will be “short-lived” as much of the fall in recent months has been driven by the energy price cap, as well as food prices.
She argued this will be a “diminishing” factor in future months and so expects inflation to go up again later this year and settle into a trajectory between 2 per cent and 3 per cent.
“Furthermore, this is not necessarily job done and victory declared for the Bank of England,” she added.
“The cost of living crisis persists and with wage inflation beginning to slow and prices in many areas of the economy still increasing faster than the headline rate, many won’t feel better off purely because inflation has hit 2 per cent.”
Additionally, Nutmeg chief investment officer, James McManus, cautioned that this announcement is unlikely to affect the Bank of England’s interest rate decision which is expected tomorrow.
“Core inflation is still running higher at 3.5 per cent, services inflation at 5.7 per cent and wage growth is around 6 per cent year-on-year.
“Central bankers have given signals that they want to cut rates, and they are aware of the pressures higher borrowing costs are putting on households, but expectation is the first rate cut won’t be until later in the year.”
tom.dunstan@ft.com
What's your view?
Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com
