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UK inflation rate: How quickly are prices rising? | |
(about 1 month later) | |
Prices in the UK rose by 2% in the year to May 2024, down from 2.3% the month before, and the lowest rate in almost three years. | |
It means inflation has finally hit the Bank of England's 2% target. | |
But the Bank has decided to keep rates on hold at 5.25% for the seventh time - meaning they remain at their highest level for 16 years. | |
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 virtual "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 monitors 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 is called the Consumer Prices Index (CPI), external. | The main inflation measure is called the Consumer Prices Index (CPI), external. |
CPI fell in May due to a slowdown in price rises in a number of spending categories, including food and soft drinks, recreation and cultural, and furniture and household goods. | |
Why are prices still rising? | Why are prices still rising? |
Inflation has fallen significantly since it hit 11.1% in October 2022, which was the highest rate for 40 years. | Inflation has fallen significantly since it hit 11.1% in October 2022, which was the highest rate for 40 years. |
However, that doesn't mean prices are falling - just that they are rising less quickly. | However, that doesn't mean prices are falling - just that they are rising less quickly. |
Inflation had remained above the Bank of England's 2% target partly because of high energy and food prices. | |
Food prices are still 25% higher than at the beginning of 2022, and petrol prices are increasing again. | |
Worker shortages also made it more expensive to find and keep staff., external | |
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. | 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. |
Why inflation is worse for some people than others | Why inflation is worse for some people than others |
Why inflation is worse for some people than others | Why inflation is worse for some people than others |
How much are prices rising for you? Try our calculator | How much are prices rising for you? Try our calculator |
How much are prices rising for you? Try our calculator | How 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 uses interest rates to try and keep inflation at 2%. | The Bank of England uses interest rates to try and keep inflation at 2%. |
When inflation was well above that target, it increased interest rates to 5.25%. | When inflation was well above that target, it increased interest rates to 5.25%. |
The idea is that if you make borrowing more expensive, people have less money to spend. People may also be encouraged 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. |
When will inflation and interest rates go down? | When will inflation and interest rates go down? |
In June, the Bank of England held rates at 5.25% for a seventh time because it did not think inflation had fallen far enough. | |
Although the headline CPI figure has hit the 2% target, the Bank also considers other measures of inflation, external when deciding how to change rates, such as "core inflation". | |
Core inflation doesn't include food or energy prices because they tend to be very volatile, but it was 3.5% in May, which suggests price rises are still an issue. Similarly, prices in the service sector are increasing at 5.7%. | |
Most economists now expect a rate cut in the autumn than the summer. | |
The June inflation figures will be released on Wednesday 17 July. | |
The Bank of England's next interest rate meeting is on Thursday 1 August. | |
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 finances | What a falling inflation rate means for your finances |
What a falling inflation rate means for your finances | What 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 |
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? |
Wages are rising faster than prices, official figures show, external. | |
Average growth in pay (excluding bonuses) during the three-month period between February and April 2024 was 6% higher than it was in the same period in 2023. | |
When the impact of inflation is stripped out, pay rose by 2.9% higher. | |
Five tips when asking for a pay rise | Five tips when asking for a pay rise |
Five tips when asking for a pay rise | Five tips when asking for a pay rise |
How to get a job: Six expert tips for finding work | How to get a job: Six expert tips for finding work |
How to get a job: Six expert tips for finding work | How to get a job: Six expert tips for finding work |
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. |
At 2%, UK inflation is now below the rate for countries using the euro, which was 2.6% in May, up from 2.4% in April. | |
Despite the slight rise in inflation, in June the European Central Bank (ECB) cut its main interest rate from an all-time high of 4% to 3.75%, the first drop in five years. | |
In March, the US central bank indicated it could cut its key interest rates three times in 2024. | |
In the 12 months to May, US inflation dropped to 3.3%, down from 3.4% in the 12 months to April. | |
But in June, the bank kept its key interest rates at between 5.25% and 5.5% - unchanged since July 2023 - and signalled it now expected to cut them just once in 2024. | |
Related Topics | Related Topics |
Economics | Economics |
Personal finance | Personal finance |
Inflation | Inflation |
Cost of Living | Cost of Living |
UK economy | UK economy |
Bank of England | Bank of England |
Pay | Pay |