Advertisement

Inflation’s 2% victory could mean nothing for struggling households

Despite inflation rates reaching the 2% mark the Bank of England have confirmed interest rates will remain at 5.25%.

Figures published by the Office of National Statistics (ONS) yesterday show inflation has fallen to 2% as a result of food prices increasing at their slowest rate since July 2021. In addition, officials added that core inflation, which executes volatile elements such as food and energy prices, fell to 3.5% in May.

a pile of british coins sitting on top of each other

Whilst this news seems positive on the surface, Martin Sartorius claimed many households will still experience squeezed budgets. When the inflation figures were released, Sartorius claimed it could encourage the bank of England to ‘cut interest rates’ but added ‘rate-setters will still need to weigh the fall in headline inflation against signs that domestic price pressures, such as elevated pay growth, are proving slower to come down.’

However, today at 12 noon officials from the Bank of England confirmed interest rates will remain at 5.25% – the highest they’ve been since the financial crash in 2008.

The decision from the Bank came as data from ONS found services inflation was 5.7% in May, which was only a reduction of 0.2% from April. Although the news will be welcomed by savers, it will come as a huge blow to people who are already struggling to pay back their mortgage loans and those who need to refinance their loans over the next few months.

In addition, analysts have revealed that prices for food, energy, clothing and rents are all around 20% higher than they were three years ago and for some, mortgage payments have doubled. The latest research from the Joseph Rowntree Foundation – a charity working to help people facing poverty – shows five million families on the lowest incomes have had to go hungry or cut back on food so they can afford household bills. The charity also found that seven in 10 low-income households in the bottom 20% were going without essentials in May this year.

On a more positive note, experts from the Bank have hinted at an August cut. A report from the Monetary Policy Committee (MPC) read: ‘As part of the August forecast round, members of the committee will consider all the information available and how this affects the assessment that the risks of inflation persistence are receding.’

The news of inflation and interest rates has come just two weeks before the next General Election and, for the first time, British households are poorer in real terms at the end of a Parliament than they were at the start in 2019.

Image: William Warby

More on this topic:

UK inflation has dropped to 3.2% which isn’t good news for interest rates

Inflation: Figures remain steady but families will still have to go without

Emily Whitehouse
Writer and journalist for Newstart Magazine, Social Care Today and Air Quality News.
Help us break the news – share your information, opinion or analysis
Back to top