UK Inflation Falls to Single Digit
United Kingdom’s inflation rate fell to the single digits for the first time in eight months, yet the cost-of-living crisis remains far from over, with food prices near their 45-year high and a continued acceleration in the cost of core consumer goods set to prove tricky for the Bank of England.
Britain’s annual inflation declined to 8.7% in April from 10.1% in March, the Office for National Statistics said Wednesday. Analysts expected an 8.2% rate for the month. On a monthly basis, consumer prices increased 1.2%, compared with the previous and estimated 0.8% growth.
Excluding the prices of food, energy and other volatile items, British inflation came in at 6.8% in April, above the previous and projected 6.2% rate. Month over month, core consumer prices grew 1.3%, surpassing the consensus forecast of a 0.7% rise.
The sharp deceleration in consumer price growth for April was mainly driven by lower electricity and gas prices, with ONS noting the absence of “large energy price rises” this year.
This downward effect was partially offset by increases in the costs of recreation and culture, reflecting higher prices of audio-visual equipment, combined with a rise in the transport sector due to second-hand cars.
Alcoholic beverages and tobacco products also pushed up the April inflation rate, largely because of a jump in tobacco duty and in the prices of wine and beer.
“Prices, in general, remain substantially higher than they were this time last year, with annual food price inflation near historic highs,” ONS Chief Economist Grant Fitzner said.
Annual food price inflation stood at 19.1% in April 2023, the second highest since August 1977. ONS said the largest upward contributor to food inflation came from vegetables.
Though the fall in the headline rate is welcome, experts are now more focused on the hotter-than-expected core inflation in the UK, which will likely make the case for a 25-basis-point rate hike in June.
“There are good reasons to think services inflation is at its peak, and we think the fall in gas prices should alleviate one major source of cost pressures in the sector. Nevertheless, this latest data raise the chance of another rate hike next month,” ING wrote.
Nearly a day before, the International Monetary Fund said the UK is no longer set to fall into recession in 2023 but warned that interest rates will remain elevated longer than expected due to stubbornly high inflation. The IMF expects annual inflation to return to the 2% target only by mid-2025, a delay of six months from the financial agency’s earlier estimate.
