The Office for National Statistics (ONS) has reported a steep fall in inflation to 2.4% in the year to April, falling from 3.2% in March.
The figure surpasses forecasts of 2.1%, suggesting economic relief may be stronger than predicted by some financial analysts.
Following last week’s announcement that the Bank of England’s (BoE) would hold interest rates at a 16-year high, there was growing uncertainty about a cut being announced in August.
The latest inflation figure has surprised many and there is suddenly growing belief that a rate cut could be announced in a few months’ time.
Slower growth in food and energy prices has contributed heavily to the latest drop in inflation, whilst tobacco prices have also eased.
Food inflation fell to 2.3%, its lowest since November 2021, down from a previous high of 20%.
Prime Minister Rishi Sunak welcomed the news, stating: “Today marks a major moment for the economy, with inflation back to normal. This is proof that the plan is working and that the difficult decisions we have taken are paying off. Brighter days are ahead but only if we stick to the plan to improve economic security and opportunity for everyone.”
Inflation has fallen from a peak of 11.1% in October 2022 – a 42-year high - to its slowest pace since 2021. Ofgem’s decision to lower the cap on average annual household energy bills by 12% in April has also had a significant effect on the falling rate.
Grant Fitzner, ONS’ chief economist, commented, “There was another large fall in annual inflation led by lower electricity and gas prices, due to the reduction in the Ofgem energy price cap. Tobacco prices also helped pull down the rate, with no duty changes announced in the budget. Meanwhile, food price inflation saw further falls over the year. These falls were partially offset by a small uptick in petrol prices.”
Inflation in the UK is now lower than the eurozone (2.4%) and the United States (3.4%), positioning Britain third in the CECD for the largest price surge.
However, services inflation, a key metric used by the BoE to assess domestic price pressures, fell marginally from 6% to 5.9% in March, which is still above the bank’s projections.
While it suggests homegrown price pressures may be cooling, some Monetary Policy Committee members may prefer to take a cautious approach and avoid committing to a June interest rate cut, instead taking a longer term view towards August.
