UK inflation data paints a picture of the UK economy.
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LONDON – Inflation in the UK fell sharply in April as energy prices fell and the impact of Russia’s invasion of Ukraine gradually faded from annual consumer price comparisons.
Headline CPI inflation came in at 8.7% year on year, the Office for National Statistics said on Wednesday, down from 10.1% in March but above the consensus estimate of 8.2% from a Portal poll of economists.
“Electricity and gas prices contributed 1.42 percentage points to the decline in annual inflation in April as last April’s surge fell out of the year, but this component still contributed 1.01 percentage points to annual inflation,” the ONS said in his report.
“Food and soft drink prices continued to rise in April, contributing to high annual inflation. However, the annual inflation rate for food and non-alcoholic beverages declined from 19.2% in the year ended March 2023 to 19.1% in the year ended April 2023.”
However, the ONS said its indicative model estimates suggest the annual inflation rate for food and non-alcoholic beverages is still the second highest in more than 45 years.
On a monthly basis, consumer prices rose 1.2%, beating the consensus estimate of 0.8%.
The consumer price index including owner-occupier housing (CPIH) increased by 7.8% in the 12 months to April 2023, compared with 8.9% in March, while the core CPI (excluding volatile energy, food, alcohol and Tobacco prices) rose 6.8% versus 6.2% in March which will affect the Bank of England.
Inflation in the UK has remained stubbornly high even as the economy defied expectations of a recession, prompting the Bank of England to hike interest rates to 4.5% for a 12th consecutive month at its last meeting earlier this month.
Economists across the board are expecting a further rise at the next meeting as UK inflation remains more stubborn than comparable major economies, while the labor market remains tight and Governor Andrew Bailey has warned of a wage price spiral.
On Tuesday, Bailey conceded to lawmakers that there were “very important lessons” to be learned from the bank’s failure to predict the strength and persistence of inflation.
As UK households continue to grapple with high food and energy bills, workers in various sectors have launched mass strikes in recent months over disputes over wages and working conditions.
Right direction, but still a long way to go
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said the return to single-digit interest rates shows the UK has “turned the tide” in its fight against inflation.
He expects further sharp falls over the summer as Britain’s energy regulator Ofgem is expected to lower its energy price cap, which will lower bills from July.
“Strains on consumer demand from a slowing labor market, higher taxes and the lagged impact of rising interest rates could mean inflation falls faster than the Bank of England has forecast,” he said.
“The drop in inflation in April is so large that the Monetary Policy Committee can leave interest rates unchanged next month. However, if they continue to risk excessive tightening, it could exacerbate the cost of living crisis and pressures on businesses.”
Richard Carter, head of fixed income research at Quilter Cheviot, said the fall on Wednesday showed things were going in the “right direction” but noted there was still an “incredibly long way to go” as inflation continues “breathtakingly high” is .”
However, Carter cautioned that such sharp declines are unlikely in the coming months, especially if the IMF’s latest forecast of a more resilient UK economy is accurate.
“Although the Bank of England has not promised that it is nearing the end of its rate-hike cycle, it will be relieved to see that inflation has finally calmed down,” Carter said.
“As long as wage growth continues to pick up, the bank will keep the option of further rate hikes on the table – especially if core inflation remains persistently high.”