Inflation falls to the Bank of England's 2.0% target

UK inflation fell to 2.0% in May 2024, the Bank of England's target, for the first time since July 2021, according to the House of Commons Library¹. The annual rate had peaked at 11.1% in October 2022, a 41-year high, before easing¹.

The Bank of England's Monetary Policy Committee raised interest rates between 2021 and 2023 in response to high inflation, which meant higher mortgage rates¹. The Bank then lowered interest rates in 2024 and 2025, causing mortgage rates to decrease, and has not changed interest rates in 2026¹. The Bank estimated in July 2026 that around 750,000 households paying less than 3% interest will remortgage in 2026 and experience an increase of £170 per month in repayments¹. It projects that just over 5 million households will see their repayments increase by the end of 2028¹.

The Library said the cumulative effect of rising prices means households face a much higher cost of living than in 2021, although there are some signs the effects of the high period of inflation have started to ease¹.

Inflation then increased, ranging from 3.0% to 3.8% between April 2025 and March 2026, before slowly falling until July 2026 and ticking up to 3.1% in August 2026¹. Data from March and April 2026 shows households noticed a temporary rise in their cost of living due to higher fuel prices as a result of the Middle East conflict¹.

ONS data shows households with the lowest incomes experienced a higher-than-average inflation rate in 2023, because they are more affected by high food and energy prices, which rose particularly quickly between 2021 and 2024¹. Real median household incomes, adjusted for CPI inflation, fell in real terms in 2021/22 and 2023/24, then increased between 2023/24 and 2024/25, with median income rising 4.6% and surpassing its 2021/22 level; income for the lowest 10% rose 1.7% in 2024/25¹.

Material deprivation, the proportion of working-age adults who cannot afford basic items, increased between 2021/22 and 2023/24, then fell to 21% in 2024/25¹. The percentage of people in food insecure households rose from 7% in 2021/22 to 11% in 2022/23 and 2023/24, then fell to 9% in 2024/25¹. Trussell reported providing 2.6 million emergency food parcels in 2025, a fall of 12% compared with 2024 due to easing inflation¹.

In August 2026, 22% of adults in Great Britain said they had to borrow more money or use more credit than usual in the last month, compared with a year ago, and 23% said they would not be able to afford an unexpected but necessary expense of £850¹. The Financial Conduct Authority found 24% of adults were finding it difficult to cope financially in May 2024, compared with 28% in January 2024 and 36% in January 2023¹.

Why it matters for households

The fall in inflation to target in May 2024 marked the end of the period in which the annual rate was rising, but it did not reverse the price increases already recorded. The Library states that the cumulative effect of rising prices leaves households facing a much higher cost of living than in 2021¹. For mortgage holders, the rate rises of 2021 to 2023 fed through into higher mortgage rates, and the Bank's July 2026 estimate points to around 750,000 households on rates below 3% remortgaging in 2026 with repayments up by £170 a month, with just over 5 million households projected to see repayments rise by the end of 2028¹. Low-income households were most exposed to the food and energy price rises of 2021 to 2024¹. Measures of hardship eased in 2024/25, with material deprivation at 21% and food insecurity at 9%, though 23% of adults told the ONS in August 2026 they could not afford an unexpected £850 expense¹.

What happens next

The Bank of England has not changed interest rates in 2026¹. The Bank's July 2026 projection covers repayment increases through to the end of 2028¹. The Library reports inflation at 3.1% in August 2026, above the 2.0% target¹.