- UK inflation eased sharply in April, with CPI inflation at 8.7% year-on-year, according to the Office for National Statistics.
- British inflation rose stubbornly even as the economy beat expectations for a recession.
- “The drag on consumer demand from a cooling jobs market, the lagged impact of higher taxes and interest rates, means inflation could ease faster than the Bank of England had forecast,” said Suren Thiru, director of economics at the Institute of Chartered Accountants. In England and Wales.
UK inflation data paints a picture of the British economy.
Bloomberg / Contributor / Getty Images
LONDON – UK inflation fell sharply in April as energy prices retreated and the impact of Russia’s invasion of Ukraine began to seep out of the annual consumer price comparison.
Headline CPI inflation stood at 8.7% year-on-year, the Office for National Statistics said on Wednesday, up from 10.1% in March, but above the consensus estimate of 8.2% from a Reuters poll of economists.
“Electricity and gas prices contributed 1.42 percentage points to annual inflation in April, as last April’s rise fell out of the annual comparison, but this component still contributed 1.01 percentage points to annual inflation,” the ONS said in its report.
“Prices of food and non-alcoholic beverages continued to rise in April, contributing to higher annual inflation, however, annual inflation of food and non-alcoholic beverages declined to 19.1% in the year to April 2023 from 19.2% in March 2023.”
However, the ONS said its indicative sample estimates suggested the annual rate of inflation for food and non-alcoholic drinks was the second-highest seen in more than 45 years.
On a monthly basis, consumer prices rose 1.2%, above the consensus estimate of 0.8%.
The Consumer Price Index, including owner-occupiers’ housing costs (CPIH), rose 7.8% in the 12 months to April 2023, up from 8.9% in March, while core CPI (excluding volatile energy, food, alcohol and tobacco prices) rose to 6.8. %, compared to 6.2% in March, which is about the Bank of England.
British inflation rose stubbornly even as the economy beat expectations for a recession, raising interest rates for the 12th time to 4.5% at its last meeting earlier this month.
Economists expect a further rise at its next meeting as inflation in the UK sticks to more than comparable major economies, while the labor market remains tight and Governor Andrew Bailey has warned of a wage-price spiral.
On Tuesday, Bailey acknowledged to lawmakers that “there are huge lessons to be learned” from the bank’s failure to forecast the strength and sustainability of inflation.
As British households continue to struggle with high food and energy bills, workers in many sectors have launched mass strike action in recent months amid disputes over pay and conditions.
Right direction, but ‘far to go’
British Finance Minister Jeremy Hunt erred on the side of caution in his response to the data, telling the BBC on Wednesday that the headline drop was “welcome news” but that “below those numbers there are things that show the battle is far from over.”
He added, “We have a long way to go.”
Suren Thiru, director of economics at the Institute of Chartered Accountants in England and Wales, says the return to a single-digit headline rate means the UK has “turned a corner” in the fight against inflation.
He expects even bigger falls in the summer as UK energy regulator Ofgem is expected to lower its energy price ceiling and lower bills from July.
“The drag on consumer demand from a cooling jobs market, the lagged impact of higher taxes and interest rates is causing inflation to fall faster than the Bank of England had predicted,” he said.
“April’s decline in inflation is large enough to leave the monetary policy committee on hold on interest rates next month, but if they continue to tighten, that could worsen the cost-of-living crisis and pressure on businesses.”
Richard Carter, head of fixed interest research at Quilter Cheviot, said Wednesday’s fall showed things were moving “in the right direction” but noted inflation was still “an incredible distance away” from being “eye-popping”. high.”
However, Carter suggested that such sharp declines were unlikely in the coming months, especially if the IMF’s latest forecast of a more resilient UK economy is accurate.
“While the Bank of England is making no promises that it is nearing the end of its hiking cycle as far as interest rates are concerned, it will be relieved to see that inflation has finally eased,” Carter said.
“As long as wage growth continues to pick up, the Bank will keep the option of further interest rate rises firmly on the table – particularly if core inflation remains high.”