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What is the UK inflation rate and how does it affect me? UK inflation rate: How fast are prices rising?
(8 days later)
Prices in the UK rose by 3.2% in the year to March 2024 - the lowest rate since September 2021. Prices in the UK rose by 2.3% in the year to April 2024 - the lowest rate since September 2021.
However, as this is above the Bank of England's 2% target, it decided not to cut interest rates - which are used to control inflation - in May. However, this is still above the Bank of England's 2% inflation target, so it is not yet clear whether the Bank will decide to cut interest rates when it meets in June.
LIVE: UK inflation falls to 2.3% as energy prices cool
LIVE: UK inflation falls to 2.3% as energy prices cool
What does inflation mean?What does inflation mean?
Inflation is the increase in the price of something over time.Inflation is the increase in the price of something over time.
For example, if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%.For example, if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%.
How is the UK's inflation rate measured?How is the UK's inflation rate measured?
The prices of hundreds of everyday items, including food and fuel, are tracked by the Office for National Statistics (ONS).The prices of hundreds of everyday items, including food and fuel, are tracked by the Office for National Statistics (ONS).
This "basket of goods" is regularly updated to reflect shopping trends, with vinyl records and air fryers added in 2024, and hand sanitiser removed. This virtual "basket of goods" is regularly updated to reflect shopping trends, with vinyl records and air fryers added in 2024, and hand sanitiser removed.
The ONS looks at price changes over the previous 12 months to calculate inflation. The ONS monitors price changes over the previous 12 months to calculate inflation.
The main inflation measure used is called the Consumer Prices Index (CPI), external. The main inflation measure is called the Consumer Prices Index (CPI), external.
One reason CPI fell to 3.2% in March was due to a drop in price for food items like meat, crumpets and chocolate biscuits. CPI fell in April largely because of falling gas and electricity prices as a result of a drop in the energy cap.
What is core inflation?
The Bank of England also considers something called "core inflation" when making decisions about interest rates.
This excludes the price of energy, food, alcohol and tobacco - which can change often - to provide a comprehensive picture of price rises.
Core inflation was 4.7% in March.
Why are prices still rising?Why are prices still rising?
Soaring food and energy bills were the main causes of the UK's recent high inflation. Inflation has fallen significantly since it hit 11.1% in October 2022, which was the highest rate for 40 years.
Oil and gas were in greater demand after the Covid pandemic, and prices surged again when Russia invaded Ukraine, cutting global supplies. However, that doesn't mean prices are falling - just that they are rising less quickly.
The conflict also reduced the amount of grain for sale, pushing up food prices. Inflation remained above the Bank of England's 2% target partly because of high energy and food prices.
Inflation hit 11.1% in October 2022, the highest rate for 40 years. Worker shortages have also made it more expensive to find and keep staff, external.
The rate has fallen significantly since then but that doesn't mean prices are falling - just that they are rising less quickly. Inflation soared in 2022 because oil and gas were in greater demand after the Covid pandemic. Energy prices surged again when Russia invaded Ukraine, cutting global supplies.
One reason that inflation has remained high is that worker shortages have made it more expensive to find and keep staff, external.
Why inflation is worse for some people than othersWhy inflation is worse for some people than others
Why inflation is worse for some people than othersWhy inflation is worse for some people than others
How much are prices rising for you? Try our calculatorHow much are prices rising for you? Try our calculator
How much are prices rising for you? Try our calculatorHow much are prices rising for you? Try our calculator
Why does putting up interest rates help to lower inflation?Why does putting up interest rates help to lower inflation?
The Bank of England target is to keep inflation at 2%. The Bank of England uses interest rates to try and keep inflation at 2%.
With inflation well above that level, the Bank of England increased interest rates to 5.25%. When inflation was well above that target, it increased interest rates to 5.25%.
The theory is that if you make borrowing more expensive, people have less money to spend. They may also choose to save more. The idea is that if you make borrowing more expensive, people have less money to spend. People may also be encouraged to save more.
In turn, this reduces demand for goods and slows price rises.In turn, this reduces demand for goods and slows price rises.
But it is a balancing act - increasing borrowing costs risks harming the economy.But it is a balancing act - increasing borrowing costs risks harming the economy.
For example, homeowners face higher mortgage repayments, which can outweigh better savings deals.For example, homeowners face higher mortgage repayments, which can outweigh better savings deals.
Businesses also borrow less, making them less likely to create jobs. Some may cut staff and reduce investment.Businesses also borrow less, making them less likely to create jobs. Some may cut staff and reduce investment.
Can government claim credit for a fall in inflation?
Can government claim credit for a fall in inflation?
When will inflation and interest rates go down?When will inflation and interest rates go down?
In May, the Bank of England held rates at 5.25% for a sixth time.In May, the Bank of England held rates at 5.25% for a sixth time.
Governor Andrew Bailey said the BoE needed to "see more evidence" that price rises had slowed but that he was "optimistic that things are moving in the right direction".Governor Andrew Bailey said the BoE needed to "see more evidence" that price rises had slowed but that he was "optimistic that things are moving in the right direction".
He said the BoE expected inflation to fall "close" to its 2% target in the next couple of months.He said the BoE expected inflation to fall "close" to its 2% target in the next couple of months.
The next inflation figures are released on 19 June and the next interest rate decision is 20 June.
What are UK interest rates and when will they fall?What are UK interest rates and when will they fall?
What are UK interest rates and when will they fall?What are UK interest rates and when will they fall?
What a falling inflation rate means for your financesWhat a falling inflation rate means for your finances
What a falling inflation rate means for your financesWhat a falling inflation rate means for your finances
Rates should be cut to 3.5% by end of 2025, IMF says
Rates should be cut to 3.5% by end of 2025, IMF says
Are wages keeping up with inflation?Are wages keeping up with inflation?
Wage growth is growing faster than rising prices, official figures show, but pay is not increasing as quickly as it was. Wages are rising faster than prices, official figures show.
Pay, excluding bonuses, grew by 6% in the first three months of 2024, compared with the same period a year before.Pay, excluding bonuses, grew by 6% in the first three months of 2024, compared with the same period a year before.
After taking inflation into account, it means pay went up by 1.9%.After taking inflation into account, it means pay went up by 1.9%.
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What is happening to inflation and interest rates in Europe and the US?What is happening to inflation and interest rates in Europe and the US?
Many other countries have also seen inflation and higher interest rates.Many other countries have also seen inflation and higher interest rates.
But even at 3.2%, UK inflation remains higher than in the EU. At 2.3%, UK inflation has finally dropped below the rate for countries using the euro, which was 2.4% in April, the same as in March.
The annual inflation rate for countries using the euro was 2.4% in April, the same as in March.
The European Central Bank raised its key interest rate to a record high 4% in September and has left it there.The European Central Bank raised its key interest rate to a record high 4% in September and has left it there.
In the US, inflation hit 3.5% in March and the US central bank kept its key interest rate at between 5.25% and 5.5%. . In the US, inflation hit 3.4% in the 12 months to April, down from 3.5% in March.
The US central bank has kept its key interest rate at between 5.25% and 5.5% since July 2023.
Related TopicsRelated Topics
EconomicsEconomics
Personal financePersonal finance
InflationInflation
Cost of LivingCost of Living
UK economyUK economy
Bank of EnglandBank of England
PayPay