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Inflation hits target raising hopes of interest rate cut

A late summer interest rate cut looks even more likely after official figures showed inflation had finally hit the Bank of England’s target for the first time in almost three years.

Prices rose at 2% in the year to May, down from 2.3% the month before, according to the Office for National Statistics.

David Bharier, Head of Research at the British Chambers of Commerce, said: “Today’s data showing CPI easing to the Bank of England’s 2% target, is a further sign that the UK is exiting the inflation crisis which began in late 2020.

“It provides additional weight for an interest rate cut in the coming months, something which will be welcomed by firms of all shapes and sizes.

“Our research has shown that a steadily declining number of businesses are concerned about inflation, from a record peak of 84% in mid 2022.

“This is positive news, but prices are not falling, just rising more slowly, and the economic outlook remains challenging. Our latest forecast expects inflation to nudge back up again to 2.3% by the end of the year.

“To restore economic growth and stability, policymakers should focus on the long-term. Our election manifesto outlines a 5-point plan for immediate action by the new government. We need a green industrial strategy, better skills planning, business rate reform, improved relations with the EU, and support for SMEs to embrace AI.

“Our manifesto has been welcomed by all the main parties and gives a clear blueprint for action after July 4.”

The Bank of England will make a decision on UK interest rates this Thursday, but is widely expected to hold the rate at 5.25% – the highest for 16 years – for the seventh meeting in a row, with markets not betting on a cut until August.

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