According to the Office for National Statistics (ONS), inflation in the UK has fallen from 2.3% in April 2024 to 2% in May 2024. The figure has fallen within the Bank of England’s 2% target for the first time since 2021, three years ago.
Core inflation, which does not account for the volatile energy, food, alcohol and tobacco industries, also saw a dip in May 2024. Core inflation fell to 3.5% in May from 3.9% in April.
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The Consumer Price Index (CPI) figures led to a slight increase in the Sterling’s foothold, trading at $1.2721 by 7:33 a.m. London time. The euro, on the other hand, declined by 0.20% against the pound.
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According to the ONS, falling food prices were the single largest contributor to the UK’s inflation figures dipping. Car fuel costs continue to be a point of concern for citizens.
According to Kantar, a UK market research firm, bad weather entailed the slowest increase in grocery sales since 2022.
Will the BOE cut interest rates in the UK as inflation falls?
According to Ruth Gregory, deputy chief economist at Capital Economics, “For now, we are sticking with our forecast that the bank will first cut interest rates from 5.25% in August, although that relies on better news on services CPI inflation and wage growth in the coming months.”
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The markets have priced a 30% chance of an interest rate cut by August. Before the UK inflation figures were out, the chances of an interest rate cut were at 50%.
According to Jamie Dutta, market analyst at Vantage, “The big question is whether the bank sticks to previous guidance and primes the market for an August kick-off to a rate-cutting cycle.“