LONDON — UK inflation fell sharply in April as energy prices retreated and the impact of Russia’s invasion of Ukraine began to fade from the annual comparison of consumer price.
Headline CPI inflation stood at 8.7% year-on-year, the Office for National Statistics said on Wednesday, down from 10.1% in March, but above a consensus estimate of 8 .2% of a Reuters poll of economists.
“Electricity and gas prices contributed 1.42 percentage points to the fall in annual inflation in April, as last April’s rise was removed from the annual comparison, but this component still has even contributed 1.01 percentage points to annual inflation,” the ONS said in its report.
“Food and non-alcoholic beverage prices continued to rise in April and contributed to high annual inflation, however, the annual inflation rate for food and non-alcoholic beverages declined from 19.2% year to March 2023, at 19.1% year to April 2023.”
However, the ONS said its indicative modeled estimates suggested the annual inflation rate for food and non-alcoholic beverages was still the second highest in over 45 years.
On a monthly basis, consumer prices rose 1.2%, above a consensus estimate of 0.8%.
The consumer price index, including homeowners’ housing costs (HICP), increased by 7.8% in the 12 months to April 2023, from 8.9% in March , while the core CPI (excluding volatile energy, food, alcohol and tobacco prices) increased by 6.8%%, compared to 6.2% in March, which will concern the Bank of England.
UK inflation remained stubbornly high even as the economy defied expectations of a recession, prompting the Bank of England to raise interest rates for the 12th consecutive time to 4.5% in its last meeting at the beginning of the month.
Economists generally expect a further rise at its next meeting as inflation remains more sticky in the UK than in major peer economies, while the labor market remained tight and Governor Andrew Bailey has warned of spiraling wage prices.
On Tuesday, Bailey acknowledged to lawmakers that there were “very big lessons to be learned” from the Bank’s failure to predict the strength and persistence of inflation.
As UK households continue to face high food and energy bills, workers in various sectors have launched mass strikes in recent months amid disputes over pay and conditions.
Right direction, but a long way to go
Suren Thiru, director of economics at the Institute of Chartered Accountants of England and Wales, said the return to a single-digit headline rate suggests the UK has “turned a corner” in the fight against inflation.
He expects further big falls over the summer as UK energy regulator Ofgem is expected to lower its energy price cap, which will lead to lower bills from July.
“Draining customer demand from a falling job market, rising taxes and the lagged impact of rising interest rates may mean inflation falls faster than it had expected the Bank of England,” he said.
“April’s drop in inflation is large enough for the Monetary Policy Committee to keep interest rates unchanged next month, but if they continue to risk excessive tightening, it could deepen the cost crisis. life and pressure on business.”
Richard Carter, head of fixed interest rate research at Quilter Cheviot, said Wednesday’s fall shows things are moving in the “right direction,” but noted there’s still “an incredibly long way to go.” long to go” as inflation remains “high.”
However, Carter suggested such falls are unlikely in the coming months, particularly if the IMF’s recent prediction of a more resilient UK economy is accurate.
“Although the Bank of England has made no promises that it is nearing the end of its interest rate hike cycle, it will be relieved to see that inflation has finally moved,” Carter said.
“As long as wage growth continues to pick up, the Bank will keep the option of further interest rate hikes firmly on the table – and particularly if core inflation remains persistently high.”