“Taking the action wasn’t always easy, but we’ve got there and inflation is back to target” 

Data released by the Office for National Statistics (ONS) showed that for the first time in almost three years, the Consumer Prices Index (CPI) rate of inflation had returned to the 2% target in the 12 months to May, down from 2.3% in the 12 months to April. 

ONS cited food as the largest downward contributor, with motor fuels the largest upward contributor. Food prices eased for the fourteenth consecutive month, increasing by 1.7% in the year to May, down from 2.9% in the year to April, from a high in March last year of 19.2%, the highest annual rate for over 45 years. 

With the economy a key element of the election for voters, the Prime Minister hailed inflation falling back to target as “very good news… the last few years have been tough on everybody. I know that… taking the action wasn’t always easy, but we’ve got there and inflation is back to target.” 

Meanwhile, although Shadow Chancellor Rachel Reeves welcomed the fall in inflation, she added that the cost-of-living crisis is not over, “While inflation is down, of course, those higher prices still remain… Whether that’s the cost of the weekly food shop, the cost of the energy bills, or indeed people who are looking to re-mortgage this year or have seen their rents increase.” 

MPC vote to retain Bank Rate 

Last week, the Bank of England’s (BoE’s) Monetary Policy Committee (MPC) voted to retain Bank Rate at 5.25% for the seventh consecutive time, as widely expected. The MPC voted by a majority of 7-2 to maintain Bank Rate, with two committee members favouring reducing the rate by 0.25 percentage points to 5%.  

Economists had largely speculated that an interest rate reduction in the middle of an election campaign would be unlikely, although, the BoE said that had no bearing on their decision, ‘The committee noted that the timing of the General Election on 4 July was not relevant to its decision at this meeting, which would as usual be made on the basis of what was judged necessary to achieve the 2% inflation target sustainably in the medium term.’  

The MPC minutes reiterated that monetary policy will need to remain restrictive for ‘sufficiently long’ to return inflation to target sustainably in the medium term, ‘until the risk of inflation becoming embedded above the 2% target dissipates.’  BoE Governor Andrew Bailey commented, “It’s good news that inflation has returned to our 2% target. We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now.” 

In its latest forecast, the Bank was positive on the prospects for the UK economy, estimating economic growth of 0.5% for Q1 2024, with a similar pace expected in Q2. Looking ahead, the next MPC meeting will conclude on 1 August. 

Election news 

Last week, Reform UK published its manifesto entitled ‘Our Contract with You.’ At the launch, Nigel Farage declared this “the immigration election,” with Reform UK’s policy document outlining a number of key pledges, including a freeze on “non-essential” immigration, leaving the European Convention on Human Rights within 100 days, raising employers’ National Insurance (NI) rates for foreign workers to 20% and scrapping net zero targets. Tax related pledges included reducing the main Corporation Tax rate to 15% in three years and abolishing business rates for small and medium-sized businesses (SMEs), to be paid for by encouraging benefit claimants back to work.  

Scottish National Party (SNP) leader John Swinney launched his party’s manifesto in Edinburgh last week, saying if the SNP won a majority of seats in the Scottish Government, they would commence “immediate negotiations” on Scottish independence talks. The NHS was a prime focus for the party, who outlined a Bill to keep the NHS in public hands, boost NHS England funding by £16bn, and to provide an extra £1.6bn each year to Scotland’s NHS. 

Ipsos published its first MRP (multi-level regression and post stratification) model of the 2024 General Election, predicting Labour could win 453 seats and the Conservatives 115, giving Labour a majority of 256. However, it believes 117 seats are still ‘too close to call.’  

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All details are correct at time of writing (26 June 2024)