Closing summary
The shadow chancellor, Rachel Reeves, has said pressure on household finances remains “acute” despite official figures showing UK inflation fell to 2% in May, returning to the official target rate for the first time in nearly three years.
The Office for National Statistics (ONS) said the consumer prices index (CPI) had eased in May, down from 2.3% in April, raising expectations of a cut in borrowing costs by the Bank of England.
Lower prices growth will give encouragement to Rishi Sunak after the prime minister made bringing inflation under control one of his main aims. The release of the inflation figures represents one of the last significant economic indicators before the vote on 4 July.
Our other main stories today:
Thank you for reading. We’ll be back tomorrow. Take care! – JK
France, Italy and others taken to task by EU over 'excessive' deficits
France has become one of seven European Union countries to be named and shamed over the size of its budget deficit in a move that could put Paris on a collision course with the European Commission.
Brussels announced that it was opening disciplinary action against France, Belgium, Italy, Hungary, Malta, Poland and Slovakia for running excessive budget deficits that are above the EU limit of 3% of national income.
Under the terms of the EU’s excessive deficit procedure, the seven countries identified will have to provide a plan of the corrective action they will take and the policies they will implement to bring their deficits below the 3% limit. The Commission will issue proposals on how fast the deficit should be cut in November, with 0.5% of GDP annual cuts as a benchmark.
Euro-area countries that do not follow up on the recommendations would potentially face fines.
Despite planned spending cuts, the International Monetary Fund estimates France’s deficit will fall gradually from the 5.5% of GDP reached in 2023, 5.3% of GDP this year and 4.5% of GDP by 2027.
But opinion polls suggest Marine Le Pen’s National Rally (RN) party – which plans to cut taxes and – is set for big gains in the looming parliamentary elections.
Leo Barincou, senior economist at the consultancy Oxford Economics, said:
The gradual fiscal consolidation planned by the current government will be the first casualty of the political crisis, worsening France’s already fraught public finances.
A divided parliament is unlikely to be able to agree on politically difficult spending cuts, which would result in a higher deficit than our current baseline. Meanwhile, the implementation of the RN platform as it currently stands would add to the public deficit.
Updated
Young's hopes for summer boost from Euros and Olympics
Young & Co’s Brewery has posted rising sales in recent weeks and was hopeful of higher summer sales thanks to the Euro football tournament, Wimbledon and the Olympics, followed by the autumn rugby internationals.
The British pub group said total sales climbed 24% year-on-year in the nine weeks from 1 April, with like-for-like sales (at pubs open at least a year) up 2.4%.
Pubs have struggled with high energy and wage costs and the lacklustre economic backdrop but are now looking forward to a summer of sport.
Chief executive Simon Dodd said:
Looking ahead, we face some challenges, but there is plenty for us to be excited about this year.
NatWest first major mortgage lender to cut rates ahead of BOE meeting
NatWest has become the first major mortgage lender to cut its rates ahead of tomorrow’s Bank of England’s interest rate decision, where the central bank is widely expected to leave borrowing costs unchanged at 5.25%. However, a fall in inflation back to its 2% target has boosted hopes of a rate reduction at its next meeting in August.
NatWest is lowering fixed-rate deals by as much 0.17 percentage points from tomorrow. its largest cuts are for people who are remortgaging and opting for a five-year fix, with the leading rate at 4.41%.
Smaller lenders have also cut their rates this week, with the Co-operative Bank lowering the cost of mortgage loans by up to 0.22 percentage points and Nottingham Building Society reducing deals by 0.24 points.
Farmers warn of future potato shortages
Farmers have warned that there could be shortages of British potatoes in the future due to extreme weather conditions and increased cost of production for farmers.
The National Farmers Union (NFU) has now called on politicians to take action action and “Save our Spuds” after drought, floods and months of heavy rain this season, had led to significant delays in the harvesting and planting of potato crops.
It also comes as potato farmers have seen the costs of production increase by 28% in the past two years.
Alastair Heath, vice chair of the NFU’s potato policy group, said:
A number of growers have made the difficult choice to reduce production to minimise losses, and the relentless wet weather has put many more growers weeks behind schedule. For some, profits have been all but wiped out. Business confidence is low and investment has become a far-away concept, which is putting pressure on British potato supplies in the short-term.
While it’s unlikely to lead to empty shelves this year, this pressure on the homegrown crop is an indication that we need urgent action to prevent the situation getting worse. I believe we can and should be self-sufficient in potatoes.
Just 13% of top roles at listed UK firms held by women – report
Just 13% of top roles at listed UK companies are held by women and less than 1% are held by women of colour, according to the annual Women on Boards report.
At companies listed on the FTSE or AIM, only 13% of the top jobs – chief executive, chair, chief financial officer and senior independent director – are held by women (436 women across 3,452 roles), said the report by WB Directors.
This includes just 25 women of colour, 0.7% of the total. At Britain’s biggest listed companies on the FTSE 100, the proportion of senior roles held by women of colour is 1.5%. This compares with 0.3% at the smaller businesses listed on AIM.
This is despite the FTSE Women Leaders Review introducing a focus on these four roles and the Financial Conduct Authority going further to set a target for firms to have at least one woman in these positions.
The FTSE 100 has 24% of women in the top four board roles – close to the target of one of the four. The FTSE 250 has 19.6% of women in the top four roles and the FTSE SmallCap fares slightly better at 21.7%.
However, the two most senior roles of chair and CEO are those with the least female representation, at just 7.9% and 6.8% respectively across FTSE All-Share and AIM listings.
More than a third (35%) of FTSE All-Share firms have not reached the target of having a board made up of 40% or more women, and this is worse for smaller companies listed on AIM, where 88% are falling short of the target.
The number of AIM companies with all-male boards has shot up to more than a third (35%), from 18% last year (187 firms).
Fiona Hathorn, chief executive of WB Directors, said:
Targets and scrutiny have resulted in hard-fought gains at FTSE 350 level. However, it’s time to extend focus to the smaller listed companies and ensure that efforts to monitor board diversity are intersectional across gender and ethnicity. There is a persistent underrepresentation of women and especially women of colour in positions of power.
We need firms across the FTSE SmallCap and AIM to urgently act on creating greater diversity at all levels. Measure it, report it, make it public - or the laggards will continue to simply opt out.
Amazon UK workers begin vote on gaining union recognition for first time
Amazon workers in the UK have come a step closer to gaining union recognition for the first time as officials from the GMB arrive at the tech firm’s Coventry depot to kick off a month-long ballot process.
Officials from the union are to visit the West Midlands site on Wednesday after the GMB was granted the right to hold the legally binding ballot by the independent Central Arbitration Committee. Amazon had rejected a request for voluntary recognition.
If staff vote to support recognition, the GMB would be given the right to represent them in negotiations over pay and conditions, marking the first time Amazon has recognised a union in the UK.
From today, more than 2,000 staff will be invited to a series of 45-minute meetings with union representatives – and separate gatherings with the company – at which the two sides will make their case.
Voting will then take place in the workplace from 8 July, with the result announced after 15 July.
Amanda Gearing, a senior GMB organiser, said:
Amazon is one of the world’s most hostile and anti-union employers. They’re a multi-billion-pound global company investing huge energy to resist efforts by working-class people in Coventry to fight for a better life.
But Coventry Amazon workers have rejected Amazon’s attempts to smash their union. Now Amazon workers, not the bosses, will decide.
‘Glacial’ progress on levelling up in UK means more resources needed – IFS
Progress towards a series of levelling up goals set by the UK government has been “glacial”, and achieving them by the target date of 2030 will require a big increase in resources for struggling areas, a leading thinktank has said.
The Institute for Fiscal Studies (IFS) said that, on many measures, regional inequality had widened and the UK had gone into reverse.
In 2022, the government set out a white paper containing 12 goals aimed at “levelling up” the UK.
While praising the clarity and ambition of the plan, the thinktank said the Covid-19 pandemic and the cost of living crisis had combined to make the period since the last election, in 2019, a challenging time to make good on the Conservative party’s pledge to narrow the UK’s geographic divisions.
The white paper’s missions included goals for primary school attainment, public transport use, high-quality skills training and employment; however, the IFS report found that:
The share of pupils in England meeting expected standards at the end of primary school dropped from 65% in 2018–19 to 60% in June 2023, against a target of 90% by 2030. In only 10 English local authorities – all in London – did at least 70% of 11-year-olds meet this target.
The total number of further education and skills courses completed in England fell by 14% between 2018–19 and 2022–23. In the lowest skilled areas, the decline was almost 20%. The goal for 2030 is to have 200,000 more people successfully completing high-quality skills training annually, driven by 80,000 more people completing courses in the lowest skilled areas.
A 21-percentage-point gap in the average employment rate between the best and worst-performing local authority areas in the UK – the widest it has been since at least 2005. The aim is to have rising pay, employment and productivity in every area of the UK, and a smaller gap between the top performing areas and others.
The Conservatives’ aim is for local transport connectivity across England to be significantly closer to the standards of London, but the gap between the use of public transport in London (39% of journeys) and in the rest of the country (7%) during 2022-23 was at its second-widest level since 2002–03, as passenger numbers failed to recover to pre-pandemic levels.
Updated
The media group which owns the Daily Telegraph newspaper tumbled into the red last year after it set aside nearly £280m to cover loans made to the Barclay family which may not be repaid.
The group said that, despite a resilient financial performance, it had made losses of £244.6m in 2023 – against profits of £33.3m in the previous year – due to the provision.
Telegraph Media Group accounts show that a £277.6m provision has been taken against amounts due from parent company undertakings “with the ongoing corporate transaction casting doubt over the recoverability of this balance”.
The Telegraph on its own website reported that the provision had come as a result of “loans extracted by the Barclay family which are unlikely ever to be repaid”.
The future ownership of the Telegraph titles and the Spectator magazine has been uncertain since June 2023, when the titles were seized by Lloyds bank after the Barclay family failed to repay £1.16bn in debts. The debts were later repaid by a UAE-backed consortium which had hoped to buy the group but were forced to walk away under political pressure.
Today, the media company said in its 2023 accounts that a detailed review of historical transactions had been undertaken in relation to amounts paid to and received from group companies and related parties.
It said this review had “identified potential irregularities in the recording of such transactions” and said that, although there had been no changes to assets and liabilities, there was “a potential risk of future possible repayment claims against the company and group in respect of such transactions”.
The Telegraph’s 2023 losses came as the group reported it had surpassed 1m subscriptions in August 2023, with subscriptions across Telegraph Media Group increasing from 734,000 in December 2022 to 1.03m in December 2023. The largest contributor to the subscription boost came from the £13m acquisition last year of Chelsea Magazine Company, a publisher of consumer titles including Classic Boat.
Turnover increased to £268m in 2023 against £254.2m in 2022, largely due to the growth in digital advertising and partnerships as well as digital subscriptions, it said.
George Iacobescu retires from Canary Wharf Group, replaced by Nigel Wilson
Sir George Iacobescu, the chair and former chief executive of Canary Wharf Group, today announced that after 36 years he would be retiring from the property developer.
Replaced by former L&G chief executive Sir Nigel Wilson, the move brings to a close to a near four-decade association with the company, and the financial centre in London’s Docklands that he was so instrumental in establishing.
A powerhouse of the property world, like the Canary Wharf regeneration project he became so synonymous with, he came from nearly nothing, to become one of the most prominent figures in the property development landscape.
Born in Romania in 1945, he grew up, like many Romanians at the time, with very little money under the the communist government that ruled the country at the time.
So poor was the state of the finances of the country and its citizens, Iacobescu tells the story of his mother-in-law once being asked to bring her own lightbulb to a medical operation. This was the only bulb in her home, and meant her apartment was left in the dark for the day.
Growing up, he initially wanted to be a doctor like his father but was pushed to engineering after his dad advised against it, telling him to get into construction because “the world will never stop building”.
Taking his father’s words to heart, he studied civil engineering in Bucharest. After working as a structural engineer in the Romania between 1969 and 1975, he was able to leave the country for Canada after getting help from a relative in North America.
While in Canada, he got a job with developer Olympia & York (O&Y) and was heavily involved in building Chicago’s Olympia Centre skyscraper and the vast World Financial Centre in New York.
His relationship with what would become London’s key financial district began in 1987, when he was sent to London from Toronto by O&Y founder Paul Reichmann to investigate whether it was feasible to build on the abandoned docklands site.
Updated
Here’s a plea to Rachel Reeves, assuming she is the next chancellor: please give your new national wealth fund a different name, writes our financial editor Nils Pratley.
The title is misleading because, whether intentionally or not, it conjures images of a Norway-style sovereign wealth fund – a vehicle to accumulate vast long-term riches for the benefit of today’s citizens and future generations.
In reality, Labour’s national wealth fund will be nothing like a sovereign wealth fund, even if it is sometimes misreported as being one. It would be a fine thing if we had such a vehicle but, sadly, the time to launch one was circa 1990, as the far-sighted Norwegians did, when North Sea oil revenues were booming. With the benefit of regular capital injections, plus the wonder of compound returns over long investment horizons, the value of the Norwegian fund is now $1.6tn. That is equivalent to half the UK’s national debt.
By contrast, the new national wealth fund will invest a mere £7.3bn over the course of the next parliament – and the cash will come from borrowing. And, unlike a sovereign wealth fund that invests around the globe to spread risk, Labour’s fund will concentrate on a narrow sector of the UK economy. The party’s manifesto details £1.8bn directed at ports, £1.5bn for gigafactories, £2.5bn to clean steel, £1bn for carbon capture and £500m to green hydrogen.
Therein lies the real purpose: this is a state-backed vehicle to co-invest alongside private sector companies in order, it is hoped, to accelerate growth in areas related to the green economy. It will be able to take equity stakes, lend directly and underwrite loans. But the core part of the mission is to attract £3 of private investment for every £1 of public investment.
That 3:1 ratio looks achievable because it is what the old “green investment bank” (also misnamed, because it wasn’t a bank) achieved before George Osborne, having set it up during the coalition years, shockingly sold it to Macquarie for £1.6bn in 2017. The national wealth fund will be bigger than the green bank but will be similarly aimed at hard-to-finance projects and should also have an arms-length investment manager to impose commercial discipline.
Labour pledges to strengthen economic watchdog within first 100 days
Labour has challenged the Conservatives to match its commitment to strengthen the economic watchdog within the first 100 days of government.
Rachel Reeves, the shadow chancellor, has pledged to introduce legislation giving the Office for Budget Responsibility greater powers in Labour’s first king’s speech.
Labour’s planned law would empower the OBR to independently publish a forecast of any major fiscal event making significant tax and spending changes. The changes are intended to prevent a repeat of Liz Truss’s catastrophic mini-budget, which was delivered without an OBR forecast, by preventing ministers from “gagging” the watchdog in future.
Truss’s mini-budget included £45bn of unfunded tax cuts and caused a meltdown in the financial markets, including a collapse in the value of the pound.
Reeves told the Guardian:
Britain is still paying the price of Liz Truss’s disastrous mini-budget that crashed the economy, put pensions in peril and sent mortgage bills soaring.
It’s clear from Jeremy Hunt’s comments that he has learnt absolutely nothing from that period and is instead pandering to the reckless voices in his party.
Berkeley returns to build-to-rent market amid London housing shortage
Shares in the upmarket UK housebuilder Berkeley fell almost 4% this morning, making it the biggest loser on the FTSE 100 index, even though it raised its 2025 outlook. The company said it would plunge back into the private rental market for the first time in a decade by launching a build-to rent arm to tackle the “severe shortage” of properties in and around London.
Berkeley, which built 3,500 homes for private sale last year, will establish a build-to-rent business, which aims to create 4,000 homes in London and the south-east over the next decade.
Berkeley plans to develop the properties across 17 brownfield sites and launch a dedicated online platform to manage them.
The firm reported a pre-tax profit of £557m for the year to 30 April, down from £604m last year. However, it has increased its pre-tax profit guidance for 2025 by 5% to £525m.
Anthony Codling of RBC Capital Markets said:
Not content with firing on all cylinders, Berkeley announced today that it is adding another cylinder to its finely tuned engine, a build to rent platform, it has also increased its FY2025 guidance by 5% to £525m - bold actions in uncertain times.
The Build to Rent platform is not a response pointing a weakness in the sales market, rather it points to the significant potential in the private rental market. Whether looking at homes for sale or homes for rent, we have a supply shortage and Berkeley is doing its bit to supply the homes we need.
Updated
UK factory gate price inflation picks up in May
Factory gate price inflation in the UK picked up in May, separate figures from the ONS showed.
Factory gate costs – those charged by companies for their goods – rose 1.7% year on year in May, up from 1.1% in April. This will eventually feed into consumer price inflation.
Input prices, which measure the cost of raw materials and other ‘inputs’, fell by 0.1%, compared with April’s 1.4% drop.
Both input and output PPI rates are at their highest levels since May last year.
Factory gate prices rose 1.7% in the year to May 2024 (up from 1.1% in April 2024) while input prices fell by 0.1% in the year to May (up from a revised fall of 1.4% in April).
— Office for National Statistics (ONS) (@ONS) June 19, 2024
Read Producer price inflation ➡️ https://t.co/GmT41IM83P pic.twitter.com/Kqf9u52HT9
UK house prices grow faster, rental growth eases
House prices in the UK grew at a faster rate in April, while rental growth eased last month.
The Office for National Statistics said average house prices rose by 1.1% in the 12 months to April, up from 0.9% in March.
Average private rents climbed by 8.7% in May, down from 8.9% in April.
Rents increased to £1,301 (8.6%) in England, £736 (8.5%) in Wales, and £957 (9.3%) in Scotland, in the 12 months to May. In Northern Ireland, average rents increased by 10.3% year-on-year in March.
In England, rents inflation was highest in London (10.1%) and lowest in the North East (6.1%).
Across Great Britain, average rent was highest in Kensington and Chelsea (£3,397) and lowest in Dumfries and Galloway (£480).
Average UK house prices grew 1.1% in the year to April 2024, up from a revised growth of 0.9% in the year to March 2024.
— Office for National Statistics (ONS) (@ONS) June 19, 2024
Read Private rent and house prices ➡️ https://t.co/mZSwvA75iP pic.twitter.com/aZ2VUx97FP
'France: Politics takes a leap into the unknown'
Leo Barincou, senior economist at Oxford Economics, has looked more closely at the French election and what it means for the economy and the public finances.
The most likely outcome of the French snap elections is a hung parliament. The far-right Rassemblement National (RN) looks all but certain to register major seat gains after its record win in European elections, mostly at the expense of President Emmanuel Macron’s centrist party. This would result in policy paralysis, delaying fiscal consolidation and preventing any meaningful reforms until the next presidential election.
However, an alternative scenario, which should not be discounted, is an absolute majority for the far right. This scenario would result in cohabitation, whereby a prime minister from the RN would be free to set domestic policy, while the role of the president would be relegated to foreign policy and defence. Given the wide policy divergences between Macron and the RN, a resignation of the president would be a possibility.
Whatever the outcome, France’s public finances are likely to worsen, he said.
Whatever the outcome, the gradual fiscal consolidation planned by the current government will be the first casualty of the political crisis, worsening France’s already fraught public finances. A divided parliament is unlikely to be able to agree on politically difficult spending cuts, which would result in a higher deficit than our current baseline. Meanwhile, the implementation of the RN platform as it currently stands would add to the public deficit.
Even in the case of a far-right victory, an upheaval in economic policy seems unlikely in the short-term. The party has abandoned its most radical economic ideas such as leaving the single currency. Still, its economic platform of unfunded tax cuts, if implemented, could push government bond yields even higher, after the jump already recorded in the week following Macron’s announcement.
Seven EU countries, including France, to face deficit procedure
The European Commission will name and shame countries with “excessive” debts today, including France.
It announces which countries will face the “excessive deficit procedure” (EDP), aimed at correcting excessive deficit and/or debt levels.
The commission can launch the procedure against an EU country for not respecting the stability and growth pact, a set of rules governing the coordination of EU countries’ fiscal policies.
Brussels is expected to reprimand France for breaching the EU’s borrowing limit of 3% of annual GDP. A bigger clash looms should the far right take power.
Goldman Sachs has warned that France’s national debt could surge even higher if Marine Le Pen’s National Rally (RN) party wins an absolute majority in the national assembly elections, which take place in two rounds on 30 June and 7 July.
Alongside France, the commission is expected to open an excessive deficit procedure against six other countries: Italy, Belgium, Malta, Slovakia, Hungary and Poland.
ING economist Francesco Pesole said:
The euro has continued to stabilise [versus the dollar] but still seems to be lacking enough steam to meaningfully rebound given lingering political risk and fiscal concerns weighing on the common currency.
What shouldn’t help the mood in European markets today is the EU Commission’s announcement of which countries will face the excessive deficit procedure. Italy and Poland already said they will be included in the list, and media reports suggest five more countries will face the infringement procedure – including France.
Updated
Upbeat inflation news may be too little, far too late for Sunak
Here is some analysis on the drop in UK inflation from our economics editor Larry Elliott.
After almost three years, the UK’s annual inflation rate is back to the government’s 2% target. That ought to be good news for Rishi Sunak and the Conservatives – but given the state of the opinion polls it looks like being far too little, far too late.
First the good news. The latest figures from the Office for National Statistics show price pressures are continuing to abate. The headline rate of inflation fell from 2.3% in April to 2% in May – and there were also declines in two closely watched measures of underlying inflation.
Inflation excluding volatile items such as food, fuel, alcohol and tobacco dropped from 3.9% to 3.5%, while inflation in the services sector – which tends to be more affected by domestic than global factors – dipped from 5.9% to 5.7%.
Food price inflation, which was nudging 20% at its peak in late 2022, now stands at 1.7%, down from 2.9% in April. Grocery bills fell by 0.3% on the month, which will be welcome for less well-off households, who spend proportionately more of their budgets on food.
But there were also declines in the inflation rates for clothing and footwear (3.7% to 3%), recreation and culture (4.4% to 3.9%), and restaurants and hotels (6% to 5.8%) because prices rose less rapidly last month than they did in May 2023.
Last week’s figures for average earnings showed pay rising at an annual rate of about 6%. With inflation at 2%, that means people are enjoying a chunky rise in living standards, a reversal of the trend in 2022 when inflation peaked at 11.1% and real pay was falling.
International comparisons show that the UK’s inflation rate is lower than in Germany (2.8%), France (2.6%), the EU as a whole (2.7%) and the same as the US (2%).
The bad news is that there is still some way to go before the Bank of England is ready to declare the war against inflation over.
Inflation drop 'sets the stage' for August rate cut – CBI
The FTSE 100 index in London has fallen 0.2%, or 16 points, to 8,174, while sterling rose.
The pound gained 0.2% against the euro to €.1855, and 0.1% versus the dollar to $1.2727.
Markets are now pricing in a 43% chance of a first interest rate cut from the Bank of England in August.
European shares are also mostly down, with the German Dax and the French CAC both trading about 0.2% lower, while Itay’s FTSE MiB is 0.2% higher.
US markets are closed for a federal holiday today.
ING economist Francesco Pesole said:
The latest UK services inflation numbers are a bit disappointing for the Bank of England, and the latest figure is 0.4 percentage points above what it had forecast back in the May monetary policy report. Things like rental growth are still pretty strong, though in line with prior months.
The data all but confirms the Bank won’t be cutting rates when it meets tomorrow. But we still have another report in July, and unless that’s a material surprise, we suspect it will still leave the BoE on track for a cut in August.
The Confederation of British Industry also said a cut in the cost of borrowing is likely in August, despite stubbornly high services inflation.
The business lobby group’s principal economist, Martin Sartorius, said:
Today’s data sets the stage for the MPC to cut interest rates in August, in line with our latest forecast’s expectations.
Updated
Markets expect first rate cut by September, another one by December
Interest rate expectations have shifted again following the drop in UK inflation back to its official 2% target.
The Bank of England meets tomorrow but is widely expected to leave interest rates unchanged at 5.25%. The probability of a cut tomorrow is estimated at just over 5%.
The central bank has been keeping a close eye on services inflation, which eased from 5.9% to 5.7%, but remains stubbornly high.
Even so, the fall in headline inflation boosted hopes of a rate cut in August. Markets are fully pricing in a move by September, and are expecting another cut by December.
Updated
Rishi Sunak said the fall in inflation was “great news” – but warned that it could rise again if Labour wins the general election on 4 July.
The prime minister said:
Great news this morning that inflation is back to normal at 2%. That’s lower than Germany, France and America.
When I became Prime Minister, inflation was at 11%. 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.
Prices for recreational and cultural goods and services rose at an annual rate of 4.1% in the year to May, down from 4.6%, today’s inflation figures showed.
Prices of pets and related products, and books fell between April and May this year, compared with a monthly rise a year ago. Prices of package holidays and cultural services rose this year by less than a year ago.
Furniture and household goods also contributed to the fall in headline inflation. On an annual basis, those prices fell by 1.8% in the year to May, compared with a fall of 0.9% in the year to April. The annual rate in May was the lowest since December 2000.
Updated
Breakfast cereal, crisps, vegetables become cheaper
Here’s more detail on what happened to food prices. Breakfast cereals, potato crisps and bars of chocolate have become cheaper.
The main downward effects on the inflation rate came from bread and cereals, vegetables, and sugar, jam, syrups, chocolate and confectionery. In each case, prices fell between April and May this year, compared with a monthly rise a year ago.
The resulting annual rates were the lowest since October 2021 for the first two categories and since June 2022 for sugar, jam, syrups, chocolate and confectionery, the statistics office said.
Annual rates eased in nine of the 11 food and soft drink categories, with the exception of oils and fats, and milk, cheese and eggs.
Rachel Reeves, Labour’s shadow chancellor, said:
After 14 years of economic chaos under the Conservatives, working people are worse off. Prices have risen in the shops, mortgage bills are higher and taxes are at a 70-year high.
Labour has a plan to make people better off bringing stability back to our economy, unlocking investment and delivering reform. All the Conservatives are offering is a desperate wish list of unfunded spending promises that will mean £4,800 more on people’s mortgages.
The choice at the election is simple: stability with Labour that will make Britain better off or five more years of chaos with the Conservatives that will mean higher mortgages.
TUC general secretary Paul Nowak said:
Over the last three years UK families have suffered the highest prices rises in the G7 – with inflation going up more over that period than it usually does over an entire decade.
Ministers can try to rewrite history all they like. But the Conservatives have presided over the worst period for living standards in modern times.
Food and energy bills have surged. Rents and mortgages have skyrocketed. And real wages are still worth less than in 2008.
Working people have paid the price for this government’s failure with household debt also increasing at record levels. We can’t go on like this. We need a government that will make work pay.
⚡️Our reaction to the latest #inflation figures is out now ⚡️
— National Institute of Economic and Social Research (@NIESRorg) June 19, 2024
Stay tuned as more insights will be out soon📉@PBejaranoCarbo @EconSteveM pic.twitter.com/5AJNNA4QQ1
Jake Finney, economist at PwC UK, said today marks a “decisive moment in the fight against inflation,” as it is the first time CPI inflation has returned to the Bank of England’s 2% target in almost three years.
This is the longest period that inflation has exceeded the 2% target since the early 2010s, when it took four years to return to target. However, during that period inflation only peaked at 5.2%, compared to a peak of 11.1% in October 2022.
Consumer prices have risen by 20% since inflation was last at target. In the three years prior to this inflation episode, prices had risen by just 5%. That means the cumulative increase in prices has been roughly four-times faster than in more normal times. The one saving grace for households is that nominal earnings have increased by 18% over the same period, preventing a sharper decline in living standards.
However, it is not ‘job done’ yet. If prices continue to rise at the same month-on-month rate as they did this month (0.3%), then headline inflation will be back over the 2% target next month (at 2.1%). This is because underlying momentum remains above levels that are consistent with the 2% target, particularly with regards to services inflation.”
Here is some instant reaction.
Luke Bartholomew, deputy chief economist at the asset manager abrdn, said:
The fall of headline inflation back to target was expected, but will still come as extremely welcome news to the Bank of England. The big question now is whether underlying inflation pressures in the economy are consistent with inflation staying around 2% in the medium term, or whether inflation will start to edge higher again once favourable base effects fade.
On that front, there is still evidence of residual stickiness in services inflation, reflecting the strength of wage growth recently. That is why an interest rate cut tomorrow is still very unlikely. But we think the Bank’s communication tomorrow will set out a path for a cut in August, which is now looking increasingly likely.
Food price rises ease to lowest rate since 2021
It is the first time inflation has met the Bank of England’s 2% target since July 2021.
This is mainly because food price rises have eased. Prices of food and soft drinks rose by 1.7% in the year to May, down from 2.9% in April, and the lowest rate since October 2021.
Food price inflation has eased for 14 months from a peak of 19.2% in March last year, the highest annual rate seen for more than 45 years.
It’s the first time inflation has met the Bank of England’s 2 per cent target since July 2021 https://t.co/ZyNZIP5zlT
— Linda Yueh (@lindayueh) June 19, 2024
Here is our full story:
Updated
UK inflation slows to official target of 2% for first time since 2021
Inflation in the UK has fallen to an annual rate of 2% in May, as expected.
It’s down from 2.3% in April, according to the Office for National Statistics.
Core inflation which excludes food, energy, alcohol and tobacco, as they tend to be volatile, has slowed to 3.5% from 3.9%, also as expected.
In the 12 months to May 2024:
— Office for National Statistics (ONS) (@ONS) June 19, 2024
· Consumer Prices Index (CPI) rose by 2.0%, down from 2.3% in April
· Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 2.8%, down from 3.0% in April
Read Consumer price inflation ➡️ https://t.co/fDtPVw0dL1 pic.twitter.com/nJcbUU41AQ
The largest downward effects came from food and soft drinks, recreation and culture, and furniture and household goods. Transport, namely fuel, provided the largest, partially offsetting, upward contribution.
Updated
Unsecured household debt to rise by £1,660 this year – TUC
Unsecured household debt is set to rise by more than £1,600 this year as families continue to struggle with the cost of living crisis, according to new TUC analysis.
Unsecured debt (loans, credit cards, purchase hire agreements) is on course to increase by 9.4% in real terms (adjusted for inflation), on average, per household this year. Over a quarter of people say they have taken out loans or borrowed on credit cards to cover unexpected bills since the start of the year.
The TUC says that this is the largest annual rise – in cash terms – since records began in 1987. The union body says the findings make a mockery of government claims that “their plan is working”.
The analysis excludes student loans.
Separate TUC polling, carried out by YouGov, shows that millions are continuing to struggle with the cost of living:
4 in 10 (42%) say they’ve cut back on essentials like food and utility spending this year. And this number rises to nearly 1 in 2 (47%) for women.
6 in 10 (60%) say they have cut back on non-essential spending like dining out and entertainment since the beginning of the year.
Nearly a fifth (19%) of respondents say they have fallen behind on household bills this year – a number that rises to over 1 in 4 (28%) for people aged 18-24.
Over quarter (27%) say have they taken out debt (loans, credit) to cover unexpected bills since the start of the year. This number shoots up to over a third (37%) for adults aged 25-49 – when lots of families raise children.
UK workers are on course for nearly two decades of lost living standards, with real wages not forecast to recover to their 2008 level until 2026.
The TUC estimates that the average worker would be £14,700 better off if their pay had grown at the same pace as pre-financial crisis real wage growth trends since 2008.
Its general secretary Paul Nowak said:
These findings show out of touch this Conservative government is with people’s struggles. While the Tories boast about their plan working, households across Britain are being pushed further into debt.
No one should have to rely on credit cards and loans to make ends meet. But after 14 years of flatlining wages – and the worst cost of living crisis in generations - many families are at breaking point.
The Tories economic record speaks for itself. Pay packets are still worth less today than in 2008 with working people on course to end this parliament poorer than at the start.
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Introduction: UK inflation expected to fall back to official 2% target
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s UK inflation day!
In just a few minutes, we will find out whether inflation across the country has continued to slow, to the official target of 2%.
Economists are predicting that the headline annual rate fell to 2% in May from 2.3% in April, partly because of lower energy prices. That was the lowest rate in almost three years, although the decline was smaller than expected, and dashed hopes of an early interest rate cut.
The Bank of England is mandated by the government to keep consumer price inflation at an annual rate of 2%. The figures are released at 7am BST by the Office for National Statistics.
Core inflation which excludes food, energy, alcohol and tobacco, as they tend to be volatile, is forecast to have fallen to 3.5% from 3.9%. The central bank will keep a close eye on the services inflation number, which remained at 5.9% in April.
Investec economist Sandra Horsfield said:
UK inflation has certainly come a long way since the monetary policy committee (MPC) last hiked rates in August: the latest consumer price index (CPI) outturn the MPC faced at that time was for June 2023, when headline inflation was 7.9% year-on-year and core inflation 6.9%. By April 2024, the corresponding rates reached 2.3% and 3.9%, respectively.
We see a number of factors as likely to have pulled down inflation. One is that goods price inflation remains on a downward trend: lower energy prices are still gradually filtering through supply chains, and import prices are falling as China leans on manufacturing exports as an engine of growth. On the services side, wages continue to add to firms’ costs; but even there, the trend in wage growth is downwards, if only moderately. This should have added up to a lower rate of ‘core’ inflation.
We will also get producer price figures, which measure factory gate inflation – this eventually feeds into consumer price rises.
The Agenda
11am BST: Spain Consumer confidence for May
3pm BST: US National Association of Home Builders’ housing market index for June
