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What is the UK inflation rate and how does it affect me? What is the UK inflation rate and how does it affect me?
(25 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 3.2% in the year to March 2024 - the lowest rate since September 2021.
However, this remains above the Bank of England's 2% inflation target, and the Bank is not expected to cut interest rates when it meets in May. 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.
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 "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 looks at price changes over the previous 12 months to calculate inflation.
The main inflation measure used is called the Consumer Prices Index (CPI).The main inflation measure used is called the Consumer Prices Index (CPI).
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.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.
What is core inflation?What is core inflation?
The Bank of England also considers something called "core inflation" when making decisions about interest rates.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 get a closer picture of price rises. 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.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.Soaring food and energy bills were the main causes of the UK's recent high inflation.
Oil and gas were in greater demand after the Covid pandemic, and prices surged again when Russia invaded Ukraine, cutting global supplies.Oil and gas were in greater demand after the Covid pandemic, and prices surged again when Russia invaded Ukraine, cutting global supplies.
The conflict also reduced the amount of grain for sale, pushing up food prices.The conflict also reduced the amount of grain for sale, pushing up food prices.
Inflation soared to 11.1% in October 2022, the highest rate for 40 years. Inflation hit 11.1% in October 2022, the highest rate for 40 years.
The rate has fallen significantly since then, but lower inflation doesn't mean prices are falling - just that they are rising less quickly. The rate has fallen significantly since then, but that doesn't mean prices are falling - just that they are rising less quickly.
Most things still cost more than they did before. One reason that inflation has remained high is that worker shortages have made it more expensive to find and keep staff.
One reason that inflation has remained high in the UK is that worker shortages have made it more expensive to find and keep staff.
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
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 target is to keep inflation at 2%.
While inflation remained several times that level, the Bank increased interest rates to 5.25%. With inflation well above that level, the Bank 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 as saving rates increase. The theory is that if you make borrowing more expensive, people have less money to spend. They may also choose 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's a balancing act - increasing borrowing costs risks harming the economy.But it's 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.
Why does the Bank of England change interest rates?
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?
The Bank of England says it expects inflation to keep falling in 2024, and has suggested it is edging towards cutting interest rates. In May, the Bank of England held rates at 5.25% for a sixth time.
In March the Bank held rates at 5.25% for the fifth time in a row. Governor Andrew Bailey said the Bank needed to "see more evidence" that price rises have slowed but that he was "optimistic that things are moving in the right direction".
Governor Andrew Bailey said he had seen "encouraging signs" that inflation was coming down. He said the Bank expected inflation would fall "close" to its 2% target in the next couple of months.
But he emphasised that the Bank had to be sure it would fall back to its 2% target and stay there.
"We're not yet at the point where we can cut interest rates, but things are moving in the right direction," he added.
Many economists are predicting a cut in early summer.
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
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.Wage growth is growing faster than rising prices, official figures show, but pay is not increasing as quickly as it was.
Pay, excluding bonuses, grew by 6.2% in the last three months of 2023, compared with the same period a year before. After taking inflation into account, it means pay went up by 1.9%. 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%.
Several industries, including rail, healthcare and education, have gone on strike over pay.
The government previously argued that big pay rises could push inflation higher because companies might increase prices as a result.
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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 been experiencing a cost-of-living squeeze 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.But even at 3.2%, UK inflation remains higher than in the EU.
The annual inflation rate for countries using the euro was 2.6% in February, down from 2.8% in January. The annual inflation rate for countries using the euro was 2.4% in March, down from 2.6% in February.
In the US, inflation hit 3.5% in March, up very slightly from 3.2% in February. 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%. .
At its March meeting, the US central bank again kept its key interest rate at between 5.25% and 5.5%.
Related TopicsRelated Topics
EconomicsEconomics
Personal financePersonal finance
InflationInflation
Cost of LivingCost of Living
UK economyUK economy
Bank of EnglandBank of England
PayPay