Inflation in the UK falls below 10% for the first time since August
UK inflation data paints a picture of the UK economy.
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LONDON — Inflation in Britain fell sharply in April, as energy prices retreated and the impact of Russia̵[ads1]7;s invasion of Ukraine began to fade out of the annual comparison of consumer prices.
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 a consensus estimate of 8.2% in a Reuters poll of economists .
“Electricity and gas prices contributed 1.42 percentage points to the fall in 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 his report.
“Prices for food and non-alcoholic beverages continued to rise in April, contributing to high annual inflation, but the annual rate of inflation for food and non-alcoholic beverages slowed, from 19.2% in the year to March 2023, to 19.1% in the year to April 2023.”
However, the ONS said its guidance modeled estimates suggested the annual rate of inflation for food and non-alcoholic beverages remained the second highest seen in more than 45 years.
On a monthly basis, consumer prices rose by 1.2%, above a consensus estimate of 0.8%.
The consumer price index including owner occupiers’ housing costs (CPIH) rose by 7.8% in the 12 months to April 2023, down from 8.9% in March, while the core CPI (excluding volatile energy, food, alcohol and tobacco prices) rose by 6.8%, up from 6.2% in March, which will apply to the Bank of England.
British inflation has remained stubbornly high even as the economy has defied expectations of a recession, prompting the Bank of England to raise interest rates for the 12th time in a row to 4.5% at its latest meeting earlier this month.
Economists largely expect a further rise at the next meeting as inflation remains stickier in Britain than in comparable major economies, while the labor market has remained tight and Governor Andrew Bailey has warned of a wage-price spiral.
On Tuesday, Bailey acknowledged to lawmakers that there are “very big lessons to be learned” from the bank’s failure to forecast the strength and persistence of inflation.
As British households continue to struggle with high food and energy bills, workers across a range of sectors have launched mass strike action in recent months amid disputes over pay and conditions.
Right direction, but a long way to go
Suren Thiru, chief financial officer at the Institute of Chartered Accountants in England and Wales, said the return to single-digit headline rates suggested Britain had “turned a corner” in the fight against inflation.
He expects more big falls over the summer, as UK energy regulator Ofgem is expected to reduce its energy price cap, reducing bills from July.
“The slowdown in consumer demand from a cooling labor market, higher taxes and the lagged effect of rising interest rates could mean inflation falls faster than the Bank of England has forecast,” he said.
– April’s decline in inflation is large enough for the Monetary Policy Committee to keep interest rates on hold next month, but if they continue to risk tightening, it could worsen the cost of living crisis and the pressure on businesses.
Richard Carter, head of fixed rate research at Quilter Cheviot, said Wednesday’s fall shows things are moving in the “right direction” but noted there is still an “incredibly long way to go” as inflation remains “wateringly high”.
However, Carter suggested that such sharp declines are unlikely in the coming months, especially if the IMF’s recent prediction of a more robust UK economy is accurate.
“While the Bank of England has made no promises that it is nearing the end of its rate hike cycle, it will be a relief to see that inflation has finally subsided,” Carter said.
“As long as wage growth continues to rise, the Bank will keep the possibility of further rate hikes on the table – and especially if core inflation remains persistently high.”