Sunak Says Inflation ‘Back to Normal’ After Reaching Target

Prime Minister Rishi Sunak records a statement inside 10 Downing Street after Iran launched an unprecedented attack on Israel that saw RAF jets deployed to shoot down drones from Tehran in London on April 14, 2024. Benjamin Cremel /PA Wire

Prime Minister Rishi Sunak has hailed the drop in inflation to the 2 percent target in May as “great news,“ adding that the UK economy ”has turned a corner.”

The figures published by the Office of National Statistics (ONS) on Wednesday showed inflation easing last month to 2 percent from 2.3 percent in April.

Inflation slowdown was driven by falling food prices, but was offset by the rising costs of motor fuels and transport.

When Mr. Sunak took office as prime minister in October 2022, the inflation rate stood at its peak of 11.1 percent. Throughout the duration of his office, Mr. Sunak had made inflation one of the government’s key priorities, promising to bring it back to two percent.

Commenting on the ONS figures, Mr. Sunak said that “inflation was back to normal” and said it was “great news.”

“That’s lower than Germany France and America. When I became prime minister, inflation was at 11 percent but we took bold action, we stuck to a clear plan, and that’s why the economy has now turned a corner. So let’s not put all that progress at risk with Labour. All they would do is spend a load of money, push up inflation and cost every working family £2,000 in high taxes,” the prime minister said in a video message on X, formerly Twitter.

Chancellor Jeremy Hunt welcomed the slowdown in the growth of prices and attributed the 2 percent inflation achievement to government’s efforts and “sticking to the plan.”

“Inflation is at the Bank of England’s 2 percent target for the first time in three years, lower than in Europe and the United States–because we stuck to the plan. There’s more to do, but the last thing families need now is an unaccountable Labour government with a big majority putting up their taxes,” said Mr. Hunt.

Labour has rejected the claim of introducing a £2,000 tax hike, if it comes to power, while shadow chancellor Rachel Reeves said: “I know that for many families and pensioners the cost of living crisis is still acute because although inflation has returned to its target, it doesn’t mean that prices are falling. It just means they are going up at a lower rate, than they were previously.”

With inflation reaching the Bank of England’s (BoE) two percent target two weeks before the general election, this could either boost the Conservatives’ prospects on July 4 or make little difference to the voting intention of Britons,  who are still feeling cost of living pressures.

Ms. Reeves said that higher food prices and energy costs, as well as higher rents and mortgages, are still “very real” for British families, struggling with the cost-of-living crisis.

Interest Rates

The drop in annual consumer price inflation in May reached the lowest inflation figure in three years. The ONS data comes ahead of the meeting by the BoE’s Monetary Policy Committee (MPC) on Thursday.

The bank is unlikely to slash interest rates, currently at a 16-year high of 5.25 percent. Most economists polled by Reuters expect the soonest cuts to take place in August.

The BoE has previously said that inflation would hit its 2 percent target in the second quarter 2024, before increasing again in subsequent quarters. The bank needs more evidence that inflation will fall further sustainably before it lowers interest rates.

A price cap in regulated household energy bills in April has contributed to the fall of inflation in May, however its effect is likely to fade later in the year.

In its latest annual review of the UK, the International Monetary Fund (IMF) said it expected inflation to rise in the second half of the year, as the effects from lower energy prices wane.

A “durable” return to the 2 percent target is expected by early 2025, the IMF said.