UK inflation could approach the Bank of England's target of 2 per cent when the Office for National Statistics (ONS) publishes the latest figures on Wednesday.
The Consumer Price Index (CPI) fell to 3.2 percent in March, compared with a year earlier, and forecasters polled by Reuters believe inflation will fall to 2.1 percent in April.
Pantheon Economics predicts a slightly lower figure of 2 percent, and Capital Economics thinks it could fall even further, to 1.9 percent. The Bank of England's (BoE) own forecast is 2.1 percent.
Ashley Webb, British economist at Capital Economics, said: “Next Wednesday's release of April CPI inflation data could prove momentous if we are right to think inflation fell from 3.2% in March to below the target. 2.0% for the first time in three years.
“This will be crucial in determining whether the first interest rate cut from 5.25% will occur in June (as we expect) or in August. What's more important is what happens next. “We believe inflation will continue to fall, perhaps even to 1.0% by the end of this year.”
The lower figures expected to be released on Wednesday will put more pressure on the Bank of England to cut interest rates from their 16-year high of 5.25 percent.
Central bank authorities have raised interest rates over the past two years in a bid to tackle inflation and aim to bring it back down to 2 percent after it peaked at 11.1 percent in 2022.
The expected drop in inflation comes just days after Ben Broadbent, deputy governor of the Bank of England, suggested that UK interest rates could be cut as early as this summer.
He said in a speech Monday morning that it is “possible” that borrowing costs will fall this summer if the economy develops as expected.
The economist said the Bank's nine-member MPC, which votes on potential interest rate increases, must assess how possible persistence around wage and services inflation continues to develop.
He added: “Whatever the background of its individual members, the MPC will continue to learn from incoming data and, if things continue to evolve with its forecasts – forecasts that suggest policy will have to become less restrictive at some point – then it is possible that “The bank rate could be reduced at some point during the summer.”
Earlier this month, Broadbent was among those who voted to keep interest rates at 5.25 per cent, with a vote of 7 to 2 in favor of no change.
Financial markets have priced in a reduction in interest rates for August.
Data released by Kantar on Tuesday indicated that food price inflation has slowed to its lowest level since October 2021.
Prices in supermarkets are 2.4% higher than a year ago, slowing for the 15th straight month from 3.2% in April, according to analysts Kantar.
Food inflation is now just 0.8 percentage points above the 10-year average of 1.6 percent between 2012 and 2021, just before prices started rising.
Fraser McKevitt, head of retail and consumer insights at Kantar, said: “Food price inflation is gradually returning to what we would consider more normal levels.
“Typically, an inflation rate of around 3% is when we start to see marked changes in consumer behaviour, with shoppers switching to cheaper items when the rate rises above this line and vice versa when the rate falls.
“However, after nearly two and a half years of rapidly rising prices, it may take a little longer for buyers to shake off the habits they've learned to help them manage the cost of living crisis.”
