Yahoo Finance UK inflation falls to 2.3% in April inching closer to Bank of England target
Inflation in the UK has slowed to an annual rate of 2.3% on lower energy costs, the lowest in nearly three years and closer to the Bank of England's target of 2%.
It marks a sharp fall from 3.2% in March, according to the Office for National Statistics. Economists, however, had expected a larger slowdown to 2.1%.
Core inflation, which strips out volatile components such as food and energy, fell to 3.9%, down from 4.2% previously but ahead of the 3.6% expected by economists.
The fall was driven mostly by a decline in energy prices. According to the ONS, prices of electricity, gas and other fuels fell by 27.1% in the year to April – the biggest fall since records began being kept in 1989.
Read more: Bank of England has room for three interest rate cuts this year, IMF suggests
Meanwhile, services inflation eased slightly, from 6% to 5.9%. Food inflation edged down to 2.9% in April from 4% in March. The rate has eased for the 13th consecutive month from a recent peak of 19.2% in March 2023, the highest annual rate seen for over 45 years.
The decline in the pace of price rises will boost hopes for a summer cut to interest rates, which would provide relief to mortgage holders grappling with the highest borrowing costs in 16 years.
Still, the sharp decline in inflation may not be enough to trigger an early interest rate cut by its Monetary Policy Committee (MPC).
Financial markets have scaled back their expectations for an interest rate cut in June, and August is also looking slightly less likely.
Before today’s inflation data, which showed services inflation is more stubborn than expected, markets had fully priced in a rate cut by August.
Yael Selfin, chief economist at KPMG UK, said: "This may still not be enough to convince more cautious MPC members to commit to a rate cut in June, especially while wage growth remains elevated and economic growth momentum is strong.
"The fall in inflation was relatively broad-based with declines in annual core, food, and energy inflation.
"However, of the three components, the key metric of core inflation remained relatively high, at 3.9% compared to a year ago, while service sector inflation was still at 5.9%, pointing to lingering price pressures in the UK economy."
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"We rightly protected millions of jobs during Covid and paid half of people's energy bills after Putin's invasion of Ukraine sent bills skyrocketing – but it wouldn't be fair to leave future generations to pick up the tab," the Treasury said.
"That's why we must stick to the plan to get debt falling. The economy is turning a corner, with strong growth this quarter and inflation close to target, allowing us to cut taxes for the average worker by £900 a year."
Commenting on today’s producer price inflation figures ONS Chief Economist @GrantFitzner said💬
Read more ➡️ https://t.co/FiUx3Aa9bV pic.twitter.com/dEvOZIIb4J— Office for National Statistics (ONS) (@ONS) May 22, 2024
Inflation is “back to normal” and “brighter days are ahead”, Rishi Sunak has said in response to the latest figures. The prime minister said: "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."
Alice Haine, personal finance analyst at Bestinvest, said: “Households can breathe a sigh of relief after the UK’s headline inflation rate tumbled to 2.3% in the 12 months to April – the lowest level since July 2021– as the runaway price rises that ignited the cost-of-living crisis finally beat a retreat.
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