May's figures show that inflation fell back to its 2% target for the first time since July 2021 and is now lower than in the US and Eurozone. However, services inflation – a key indicator of domestic price pressures – remains high. Overall, the costs of goods and services have been rising faster than property prices for the last 19 months, but the gap is starting to close as house prices return to growth.
The resilience of the labour market has stunned many economists and has helped avoid a repeat of the 2008 recession. While unemployment remains low by historic standards, it has ticked up slightly in recent months which should help ease some of the wage growth pressures.
Consistently high income growth has been worrying Bank of England policymakers as it's a sign that inflationary pressures are embedded in the economy. But from a housing affordability perspective, strong income growth has helped off set some of the pain of higher rates. Average earnings have been rising faster than house prices for the last 16 months.
UK GDP is estimated to have been flat in April 2024, driven by falls in production and construction. Despite this stagnation, the economy grew by 0.7% in the three months to April 2024. Overall, the UK economy is now 2.6% larger than on the eve of the pandemic.