UK inflation reaches 2% target

UK inflation has hit the Bank of England’s target for the first time in almost three years.

Prices rose at 2% in the 12 months to May, down from 2.3% in April, according to the Office for National Statistics.

The drop in the monthly change in consumer prices came from food and soft drinks, recreation and culture, and furniture and household goods, offset by upward contributions from motor fuels.

News of a fall in inflation, comes ahead of a Bank of England decision on UK interest rates on Thursday. The bank is expected to hold the rate at 5.25% for the seventh time in a row, with markets not expecting a cut until August.

Mike Randall, CEO of Simply Asset Finance said: “Although the news of a downturn in inflation provides relief for small businesses, with the General Election just around the corner and cost pressures proving difficult to shift, SMEs will be hopeful for positive change as we approach the 4th July deadline”

“Urgent action is now required from the government to keep the UK recovery on track. And central to that needs to be how it can ensure that SMEs can sustainably and reliably drive productivity and growth. Incentivising this through policies addressing late payments, planning reforms, and capital allowances will be crucial. But access to capital is all too often the core of the issue. Lenders have a responsibility to deliver fast, innovative, and agile financing, reassuring businesses that they have the necessary support to help them not just manage through the tricky times, but thrive when out the other side.”

Neil Rudge, chief banking officer for commercial at Shawbrook, commented, “A slowdown/continued hold in price growth is welcome news for business owners, enhancing the likelihood of a base rate cut post-election. This could stimulate growth by lowering borrowing costs, thereby providing SMEs with the comfort and confidence to advance their plans.

“Despite political uncertainty, we observe a robust demand for funding from SMEs, and we are confident this demand will strengthen as recent macroeconomic volatility gives way to stability and clarity regarding the incoming government for the next four years.”