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UK inflation rate: How fast are prices rising? UK inflation rate: How quickly are prices rising?
(about 1 month later)
Prices in the UK rose by 2.3% in the year to April 2024 - the lowest rate since September 2021. 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.
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. It means inflation has finally hit the Bank of England's 2% target.
LIVE: UK inflation falls to 2.3% as energy prices cool 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.
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 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 April largely because of falling gas and electricity prices as a result of a drop in the energy cap. 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 remained above the Bank of England's 2% target partly because of high energy and food prices. Inflation had remained above the Bank of England's 2% target partly because of high energy and food prices.
Worker shortages have also made it more expensive to find and keep staff, external. 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 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 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 May, the Bank of England held rates at 5.25% for a sixth time. 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.
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". 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".
He said the BoE expected inflation to fall "close" to its 2% target in the next couple of months. 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%.
The next inflation figures are released on 19 June and the next interest rate decision is 20 June. 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 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 saysRates should be cut to 3.5% by end of 2025, IMF says
Rates should be cut to 3.5% by end of 2025, IMF saysRates 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. Wages are rising faster than prices, official figures show, external.
Pay, excluding bonuses, grew by 6% in the first three months of 2024, compared with the same period a year before. 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.
After taking inflation into account, it means pay went up by 1.9%. When the impact of inflation is stripped out, pay rose by 2.9% higher.
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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.
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. 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.
The European Central Bank raised its key interest rate to a record high 4% in September and has left it there. 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 the US, inflation hit 3.4% in the 12 months to April, down from 3.5% in March. In March, the US central bank indicated it could cut its key interest rates three times in 2024.
The US central bank has kept its key interest rate at between 5.25% and 5.5% since July 2023. 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.
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