Annual inflation fell sharply in April. The rate of inflation is the slowest in the past three years. UK inflation is lower than the EU.
Still, the latest breaking news on cost of living: UK Office for National Statistics That was a bit of a disappointment: April inflation was always going to be good, with a sharp decline guaranteed by a failure to repeat the energy price hikes of a year ago.
However, this figure was slightly higher than expected at 2.3%. The consensus among economists polled by Reuters was 2.1%. Some predicted that it would fall below the government’s target of 2%.
The main reason for the drop from 3.2% in March is the continuing downward trend in household energy bills: the ONS said the prices of electricity, gas and other fuels fell 27.1% in April this year compared with April 2023, the sharpest fall since records began in 1989. Food price inflation also fell from 4% to 2.8%.
These developments benefit poor households, which spend a large portion of their income on heating, lighting and food.
But there was also not-so-good news. Core inflation, which excludes food, energy, tobacco and alcoholic beverages, fell to 3.9% from 4.2%, instead of the expected 3.6%. More worryingly, inflation in the services sector, which is closely monitored by the Bank of England’s rate-setting body, was little changed, falling from 6% to 5.9%.
One reason for this appears to be that businesses have passed on at least some of the costs of the rise in the National Living Wage, which rose from £10.42 to £11.44 last month, to customers. Inflation in the hotel and restaurant sector, the part of the economy with a high concentration of minimum wage workers, rose from 5.8% to 6% last month.
The Bank’s Monetary Policy Committee will likely pay more attention to services inflation than the headline 2.3% figure because it considers it a reasonable indicator of price pressures generated by the UK domestic economy.
Rob Wood, UK chief economist at Pantheon Macroeconomics, said there were many examples of service inflation, with accommodation, water and airfares, catering, and recreational and cultural services all experiencing significant price increases in the last month. said. “While the upside surprise in other regions was widespread, it was not focused on a few volatile factors,” he said.
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Paul Dales, chief UK economist at Capital Economics, said he expected services inflation to fall sharply to 5.2% in April, and that a sharp drop would affect the timing of cuts in public borrowing costs.
“While there are still wage and inflation announcements to be made before the June 20th Bank of England board meeting, a rate cut feels very unlikely at this point. Even an August rate cut seems a bit more doubtful.” he said.
