Having reached highs of 11.1% in October 2022, UK inflation has fallen to 2.3%, according to the Office for National Statistics. We’re finally getting closer to the Bank of England’s target of 2%.
Approaching Pre-Pandemic Levels Again
The fall in inflation means we’re back to the lowest level since 2021, when the country emerged from the pandemic and the economy started to ramp up again.
Energy Price Fall Helping
The bulk of the drop has been attributed to a sharp fall in energy prices. Fuels such as energy and gas have fallen in price by 27.1% in the year to April, the biggest ever recorded drop in energy prices.
Lower Energy Price Cap Followed
The lowering of the price cap in April helped the average family save over £200 per year on their energy bills. This will have been a very welcome relief for millions.
Sunak Celebrates
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.”
Sunak Urges Public to Stick with the Tory Plan
He continued: “Brighter days are ahead, but only if we stick to the plan to improve economic security and opportunity for everyone.”
Chancellor Cautiously Optimistic
Jeremy Hunt has said, “For families worried about cost-of-living pressures, it will be a real relief that inflation is falling to much more normal levels.”
Another Urge to Stick with the Plan
The Chancellor also, however, said that prices are “much higher” than last year, but says this is “why we need to continue to stick to the plan”.
Labour Not Celebrating Yet
The shadow chancellor Rachel Reeves said that it’s “not the time for Conservative ministers to be popping champagne corks and taking a victory lap.”
Reeves Says Families Are Worse Off
She continued: “After 14 years of Conservative chaos families are worse off. It’s time for 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.”
Further Warnings: All Is Not Rosy
Paul Nowak from The Trades Union Congress said: “Prices are still going up. Food and energy bills are much higher than a couple of years ago. And many are being hit by soaring mortgage repayments.”
Lib Dems Also Sticking the Boot In
Lib Dem Treasury spokesperson Sarah Olney said: “Conservative ministers cannot celebrate Today after presiding over the worst cost-of-living crisis in a generation. The aftershocks of this crisis will be felt for years to come, and the blame lies squarely with this incompetent government.”
Heavily Lifting Done by Energy Prices
The reality is most of the fall in inflation is due to the reduction in energy prices. Looking at other areas of the economy, such as services, show that it’s still somewhat sticky. Service industry inflation only dropped to 5.9%.
Eyes on the Bank of England
Most families’ largest expense is their housing, so attention is turning towards the Bank of England and whether or not they will be reducing base interest rates in the summer.
Experts Not Sure How Bank of England Will React
Paul Dales, UK chief economist at Capital Economics, said: “It feels as though a cut in June now seems very unlikely. Even a cut in August is looking a bit more doubtful.”
Mortgage Rates Likely to Hold Firm
Nick Mendes of John Charcol Brokers said: “Today’s announcement indicates that markets will likely price in a prolonged hold, meaning mortgage rates will remain around their current levels for a bit longer.”
Food Prices Offer Hope
The evidence from the food industry shows that inflation here is generally levelling off, and the 19%+ price rises we were seeing previously are now a thing of the past. As another large outgoing, this will help many people feel better off.
Petrol Prices Have Risen
According to official figures, the average price of petrol has increased by 3.3p per litre between March and April, making the cost of motoring increase. With recent insurance price hikes, this isn’t welcome news for motorists.
Mixed Bag of Results
These latest inflation figures are great news for the government because they give them something to point at as progress. However, closer inspection shows that most of the fall comes from energy, not the wider economy.
Experts Slightly Disappointed
Whilst the headline figure of a large drop in inflation is good news, experts were hoping for 2.1% rather than the reported 2.3%. This means we all may have to be careful for a little while longer.
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