UK Inflation Update June 2024

Released in June, the May 2024, the UK’s annual inflation rate fell to 2%, aligning perfectly with the Bank of England’s target. This is the lowest inflation rate since July 2021 and a decrease from 2.3% in April. The slowdown has been largely driven by a significant reduction in food prices, easing pressures on businesses and consumers alike.

Key Drivers of the Inflation Slowdown

• Food Prices: The cost of food has notably slowed, with an annual increase of only 1.7% in May, down from 2.9% in April. This is the lowest increase since October 2021. Items such as bread and cereals, vegetables, and sugar, jam, syrups, chocolate, and confectionery saw the most significant price drops.
• Restaurants and Hotels: Prices in this category eased to 5.8% from 6% in April, providing some relief to consumers dining out or staying in hotels.
• Recreation and Culture: Inflation for recreational and cultural goods and services decreased to 3.9% from 4.4%, making leisure activities slightly more affordable.

Areas of Decline

• Housing and Utilities: The costs for housing and utilities continued to decline, with a reduction of 4.8% in May, slightly better than the 4.9% drop in April.
• Furniture and Household Equipment: Prices in this sector fell by 1.9% in May, compared to a 1% decline in April, marking the largest annual fall since December 2000.

Services and Transport

• Services Inflation: Although services inflation eased to 5.7% from 5.9% in April, it remained above forecasts of 5.5%. This indicates that while the overall trend is downwards, certain service costs are still higher than anticipated.
• Transport: Prices for transport increased to 0.5% from 0.1%, mainly due to rising costs for motor fuels and transport services. This was partially offset by lower second-hand car prices.

Core Inflation and Monthly Changes

The core inflation rate, which excludes volatile items like energy, food, alcohol, and tobacco, eased to 3.5% in May, the lowest since October 2021, down from 3.9% in April. On a month-to-month basis, the Consumer Price Index (CPI) increased by 0.3% in May.

Implications for Businesses and Individuals

For business owners and individuals involved in international payments, this slowdown in inflation is a notable development. It signals a potential stabilization of prices, which can help in better planning and budgeting. Lower inflation can reduce the cost of goods and services, potentially increasing disposable income and consumer spending.

Eyes on the Bank of England

With inflation now hitting the Bank of England’s target, all eyes are on the upcoming rate decision on June 20th. The market will be closely watching to see if the Bank of England will adjust interest rates in response to this new data. A decision to keep rates steady could indicate confidence in the current economic conditions, while a rate cut could be seen as an effort to further stimulate growth.

Conclusion

The recent drop in the UK’s inflation rate to 2% is a positive sign for the economy, bringing relief to consumers and businesses alike. However, with the Bank of England’s upcoming rate decision, it’s important to stay informed and prepared for any changes that may impact international payments and overall economic strategy.