UK inflation has fallen less than expected, despite falling gas and electricity prices, dashing hopes that the Bank of England will lower interest rates at its next meeting in June.
Figures released by the Office for National Statistics (ONS) on Wednesday morning showed the consumer price index was 2.3 per cent in April, up from 3.2 per cent in March.
It marks the lowest level since July 2021, however it is still 0.3 percentage points higher than the Bank's target figure of 2 percent, and higher than the 2.1 percent forecast by City analysts. .
Services inflation, which is also a critical indicator for Bank officials, fell slightly from 6 percent in March to 5.9 percent in April, exceeding the 5.4 percent rate that some economists had been predicting.
Economists believe the higher-than-expected inflation figures make it less likely that the Bank will cut interest rates from 5.25 percent at its June meeting.
Responding to the UK inflation figures, Suren Thiru, economic director at ICAEW, said a rate cut in June was now “unlikely” and was due to lower-than-expected inflation figures and disappointing services inflation.
He said: “This disappointing fall in inflation suggests the UK is moving back towards the Bank of England's 2% target, as lower energy bills had a smaller-than-expected impact on the headline rate in April.
“Concerns about higher-than-expected headline inflation are exacerbated by disappointing declines in core and services inflation, suggesting that the issue of underlying price pressures inherent to the broader economy has not yet been resolved.” .
“The overall tariff is expected to fall noticeably over the summer, once the expected drop in Ofgem’s energy price cap reduces people’s energy bills from July.
“Persistent concerns about underlying inflation pressures mean a rate cut in June is unlikely. However, these figures may convince more rate regulators to vote to ease policy, providing a signal that a summer rate cut is still possible.”
Paula Bejarano Carbó, an economist at NIESR, said Wednesday's figures were “positive news” but that the Bank could still decide to maintain interest rates.
She said: “Inflation has fallen to its lowest level in almost three years. This is positive news, however, inflation remains above the Bank of England's 2 per cent target and core inflation remains above its historical average of 3.9 per cent.
“Together with last week's strong wage growth data, we believe elevated services inflation will remain an upside risk to inflation pressures in the second half of this year.
“As a result, the MPC may act cautiously at its next meeting and maintain interest rates, despite today's encouraging headline rate drop.”
Central bank policymakers have raised interest rates over the past two years to 5.25 percent in a bid to tackle inflation.
Prime Minister Rishi Sunak, who has made controlling inflation one of his key economic promises, struck a more positive tone.
He said: “This is proof that the plan is working and that the difficult decisions we have made are paying off. Better days are ahead, but only if we stick to the plan to improve economic security and opportunity for all.”
Reacting to the figures, shadow chancellor Rachel Reeves said: “Inflation has fallen, but now is not the time for Conservative ministers to pop champagne and take a victory lap.” After fourteen years of conservative chaos, families are worse off. Prices in stores have skyrocketed, mortgage bills have increased, and taxes are at their highest level in seventy years.
“Rishi Sunak is once again putting household finances at risk with his £46bn unfunded policy to abolish national insurance, which will mean higher borrowing, higher taxes or the end of state pensions as we know them. “It's time to change.
“Labour's first steps will deliver economic stability so we can grow our economy and keep taxes, inflation and mortgages as low as possible.”
TUC general secretary Paul Nowak said that despite falling inflation, “the cost of living crisis is not over” and millions of people continue to cut back on everyday needs.
He said: “Prices continue to rise. Food and energy bills are much higher than they were a couple of years ago. And many are being hit by rising mortgage payments.
“While it is good that the inflation rate is lower, millions of people across the country are still having to cut back on everyday needs as they struggle to make ends meet.
“That's because household budgets have been decimated by the biggest price increases in the G7 and wages have stagnated for the past 14 years.”
