UK inflation falls to Bank of England's 2% target ahead of elections

UK inflation falls to Bank of England's 2% target ahead of elections

  • U.K. inflation fell to the Bank of England's target of 2.0% in May, the Office for National Statistics said Wednesday.
  • The headline reading declined from 2.3% in April, bringing it in line with the central bank's 2% target.
  • The print is the last the key economic measure ahead of national elections in July.

U.K. inflation fell to the Bank of England's target of 2.0% in May, the Office for National Statistics said Wednesday, in the last print of the key economic measure ahead of national elections in July.

The headline reading declined from 2.3% in April and came in line with the 2% expectations of economists polled by Reuters.

Services inflation — which is closely watched by the BOE given its dominance within the U.K. economy and its reflection of domestically-generated price rises — was at 5.7% in May, versus 5.9% during the previous month.

Core inflation, excluding energy, food, alcohol and tobacco, dipped to 3.5% from 3.9% in April.

Unseasonably bad weather led to the slowest increase in grocery sales in two years, new figures from U.K. market research firm Kantar showed Tuesday. Grocery sales rose 1.0% in the four weeks to June 9, marking the sixteenth consecutive monthly decline in food inflation, according to the index.

Bank of England decision in focus

The BOE will meet on Thursday to give its latest interest rate decision and provide its outlook on the future trajectory for inflation. The Bank is widely expected to hold rates steady at 5.25%, where they have been since August 2023 — back when inflation hovered around 7.9%.

Nevertheless, with inflation now falling closer to target, markets are now pricing in a near-term cut. All but two of 65 economists polled by Reuters last week said they expected an interest rate trim in August, while financial markets are pricing in such a curb in September.

It comes as the U.K. gears up for its general election on July 4, with polls pointing to a landslide victory for the opposition Labour party.

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