UK inflation hits 2% target as election looms

UK inflation for May dropped to the Bank of England's target of 2.0%, as reported by the Office for National Statistics, marking a decrease from 2.3% in April. This figure matched economists' forecasts, causing a slight rise in the sterling to $1.2732. Services inflation, a crucial indicator for the BOE, decreased to 5.7% from 5.9% in April, while core inflation, excluding certain volatile items, fell to 3.5% from 3.9%.

The drop was largely driven by falling food prices, although car fuel costs continued to rise. Poor weather conditions also contributed to the slowest growth in grocery sales in two years. Despite hitting the BOE's target, economist Azad Zangana warned of potential inflationary pressures later in the year as the energy price cap is phased out. He suggested the BOE might cut rates sooner than expected, although a decision to hold rates steady at 5.25% at tomorrow's meeting is widely anticipated. With inflation decreasing, many economists predict a rate cut in the near future.

This economic update comes ahead of the U.K. general election on July 4, with predictions favouring a Labour party victory. Prime Minister Rishi Sunak welcomed the inflation news, while opposition politician Rachel Reeves highlighted ongoing cost-of-living challenges.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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