Say congratulations to the UK: Inflation’s back to 2%.

Headline CPI matched the Bank of England’s target in May, data released on Wednesday showed. It was the first mandate-consistent headline print since mid-2021.

Food prices fell from the prior month and goods prices are now deep into deflation on a 12-month basis. The -1.3% YoY reading on the goods gauge was the largest decline in nearly eight years.

As the figure shows, core price growth’s still running well above target, at 3.5%, although that’s just half the annual rate observed this time last year.

The real problem is, was and will remain services inflation. It ran 5.7% last month. That counted as the slowest since July of 2022, but it was ahead of estimates and still suggests the Bank of England will have to be vigilant — services price pressures are difficult to dislodge and tend to be self-fulfilling. And blah, blah, blah. You know the copy.

Consensus for the services print was 5.5%. The upside “surprise” prompted traders to trim rate-cut bets for August.

The August MPC was priced at less than one-third odds of a cut after the data on Wednesday, down from a coin toss (give or take) ahead of the release.

My guess is the MPC will cut in August alongside the new forecasts with a view towards cutting again in November of December. They’re not going to get a lot more progress on the headline print (if they get any at all) and the only people who think it makes sense to abandon a “planned” August rate cut because economists were two tenths off on their projection for an inflation subindex covering May are traders and economists.

Obviously, the BoE wasn’t going to cut on Thursday, so I’m not sure what all the “nail in the coffin” rhetoric was about vis-à-vis the June meeting. There was no chance of a move this week. Even if the data justified a cut, there’s an election on July 4.

Speaking of the election, Rishi Sunak claimed victory over headline inflation and did a little campaigning. “Great news this morning that inflation is back to normal at 2%,” he declared, in a hopelessly silly social media video (below).

@RishiSunak

“That’s lower than France, Germany and America,” he went on, before exhorting voters. “Let’s not put all that at risk with Labour. All they would do is spend a load of money and push up inflation.”

That’s a “load of”… well, you know. Rishi’s a decent guy, God bless him. The UK could do worse. In fact, the UK did do worse. A lot worse. For three prime ministers in a row preceding Sunak. But it doesn’t matter. He’s in a for a complete wipeout early next month and everybody, including and especially him, knows it.

“We’re probably towards the end of the disinflationary process for now,” ING said Wednesday, of the data. “While headline CPI could conceivably drop another tenth of a percentage point or two into the summer, we expect inflation to bounce around the 2% target for much of this year and potentially could creep back up to the 2.5% area into year-end.”

Rachel Reeves stated the obvious. “Although inflation is falling, that doesn’t mean prices are going down,” she said. “It just means they’re going up at a lower rate.”