Market Analysis

U.K. inflation has dropped to the Bank of England's target for the first time in nearly three years, according to data released on Wednesday. This development has raised hopes for potential interest rate cuts by the central bank in the near future.

The U.K. consumer price index (CPI) increased by 2.0% annually in the 12 months leading up to May 2024, as anticipated, down from 2.3% in April. This marks the slowest rate of increase since July 2021.

On a monthly basis, the CPI rose by 0.3% last month, slightly below the forecast of 0.4% and matching the previous month's gain.

The largest downward contribution to the monthly change came from food prices, which fell this year compared to a rise last year, according to the Office for National Statistics. Conversely, the largest upward contribution came from motor fuels, with prices rising slightly this year but falling last year.

Core inflation, which excludes volatile items such as food, energy, alcohol, and tobacco, fell to 3.5% annually from 3.9%, in line with expectations.

This data adds to the global disinflation trend, following benign U.S. data last week, and comes after a prolonged period of high inflation in the U.K., which peaked at 11.1% in October 2022—the highest level since 1981.

The Bank of England is set to announce its latest interest rate decision on Thursday, but it is widely expected to maintain the current rates for now. The BoE had steadily increased interest rates from December 2021, reaching a peak of 5.25% in an effort to bring inflation down to its 2% target.

Paraphrasing text from "Investing" all rights reserved by the original author.