UK inflation rate: How fast are prices rising?

Prices in the UK rose by 3.2% in the year to March 2024 - the lowest rate since September 2021.

However, as this is above the Bank of England's 2% target, it has not yet cut interest rates - which are used to control inflation.

Inflation is the increase in the price of something over time.

For example, if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%.

The prices of hundreds of everyday items, including food and fuel, are tracked by the Office for National Statistics (ONS).

This virtual "basket of goods" is regularly updated to reflect shopping trends, with vinyl records and air fryers added in 2024, and hand sanitiser removed.

The ONS monitors price changes over the previous 12 months to calculate inflation. It uses a measure called the Consumer Prices Index (CPI), external.

One reason inflation fell in March was because of a drop in price for food items like meat, crumpets and chocolate biscuits.

Inflation has fallen significantly since it hit 11.1% in October 2022, which was the highest rate for 40 years.

However, that doesn't mean prices are falling - just that they are rising less quickly.

Inflation remained above the Bank of England's 2% target partly because of high energy prices.

Worker shortages have also made it more expensive to find and keep staff, external.

Inflation soared in 2022 because oil and gas were in greater demand after the Covid pandemic. Energy prices surged again when Russia invaded Ukraine, cutting global supplies.

The Bank of England uses interest rates to try and keep inflation at 2%.

Because inflation was well above that target it increased interest rates to 5.25%.

The idea is that if you make borrowing more expensive, people have less money to spend. People may also be encouraged to save more.

In turn, this reduces demand for goods and slows price rises.

But it is a balancing act - increasing borrowing costs risks harming the economy.

For example, homeowners face higher mortgage repayments, which can outweigh better savings deals.

Businesses also borrow less, making them less likely to create jobs. Some may cut staff and reduce investment.

In May, the Bank of England held rates at 5.25% for a sixth time.

Governor Andrew Bailey said the BoE needed to "see more evidence" that price rises had slowed but that he was "optimistic that things are moving in the right direction".

He said the BoE expected inflation to fall "close" to its 2% target in the next couple of months.

The next inflation figures are released on 22 May and the next interest rate decision is 20 June.

Wages are rising faster than prices, official figures show.

Pay, excluding bonuses, grew by 6% in the first three months of 2024, compared with the same period a year before.

After taking inflation into account, it means pay went up by 1.9%.

Many other countries have also seen inflation and higher interest rates.

But even at 3.2%, UK inflation remains higher than in the EU.

The annual inflation rate for countries using the euro was 2.4% in April, the same as in March.

The European Central Bank raised its key interest rate to a record high 4% in September and has left it there.

In the US, inflation hit 3.4% in the 12 months to April, down from 3.5% in March.

The US central bank has kept its key interest rate at between 5.25% and 5.5% since July 2023.