At long last, the Bank of England’s much-coveted inflation target has been hit. For the first time in almost three years, the rate of inflation in Britain has dropped to two per cent. 

According to ONS data out today, the rate of price growth slowed to two per cent in the year to May, down from 2.3 per cent the month before, in line with City analysts’ forecasts.

Not only is UK inflation now rising at its slowest pace since July 2021, it has also dipped below levels in the eurozone and the US, where rates for May came in at 2.6 per cent and 3.3 per cent respectively. 

While food prices are still 25 per cent higher than at the beginning of 2022, food inflation continued to slow in May to 1.7 per cent, down from 2.9 per cent the month before. A fall in the rate of price growth for clothing, furniture and household goods also helped to drive headline inflation down. 

As to be expected, Rishi Sunak has not hesitated to uphold these new figures as evidence that the economy has stabilised thanks to his strong leadership. 

“When I became prime minister, inflation was at 11 per cent. But we took bold action. We stuck to a clear plan and that’s why the economy has now turned a corner,” he told LBC today.  

“Let’s not put all that progress at risk with Labour,” he urged listeners, warning that Starmer’s party would drive inflation back up again by “spending a load of money”. 

Shadow Chancellor, Rachel Reeves, hit back at the PM: While inflation falling to the Bank’s official target is “welcome” news, energy, food, rent and mortgage costs still remain higher than before Liz Truss’s disastrous mini-budget, she reminded him. 

If she had wanted to get back at him more directly instead of insulting his predecessor, she could have argued that Sunak is taking credit for something that has rather little to do with him. And made the point that the only one of the PM’s five pledges he has managed to meet is the one involving a target least impacted by government policy.

Why didn’t she choose this line of attack? Perhaps because it would call into question whether Labour unfairly laid the blame at the door of the Conservative party back when inflation was soaring. As economist Simon French puts it, just as the UK government received too much criticism for its role in high inflation on its way up, now “it is seeking unjustified, symmetrical praise on the way down.”

The reality is that politicians – and certainly ones operating in a country where central banks are independent – have less control over inflation than much of the public, or indeed they, like to think. The Bank’s monetary tightening and global commodity prices are largely responsible for the rate of price rises. 

Speaking of central banks, the Bank of England’s Monetary Policy Committee (MPC) is meeting tomorrow to talk interest rates. Mortgage holders will be hoping it follows the lead of the European Central Bank and makes its first cut. But markets are betting that the MPC will opt to hold rates at 5.25 per cent for the seventh meeting in a row, until at least August. 

The election has further dampened hopes of a cut tomorrow. An independent BoE would be nervous to start a rate-cutting process during an election, for fear of it being seen as a political move. 

So, thanks to Sunak’s timing to call the contest, rates are even more likely to languish at their 15 year high. 

In some respects, it’s surprising Sunak made his announcement before the Bank imposed its first cut. Had he been less hasty, he could have claimed credit for that too. 

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