The latest data from the Office for National Statistics (ONS) shows that the rate of price rises has dropped to 2.3% in April, the lowest it has been in nearly three years. This is a significant decrease from the previous month, when the figure stood at 3.2% in the year up to March.
The ONS has reported that this is the lowest inflation rate seen since July 2021. While prices are still rising, they are doing so at a slower pace than before. However, it should be noted that the current rate is still higher than what economists and the Bank of England had predicted. A poll conducted by Reuters and the Bank had forecasted a rate of 2.1%.
This decrease in inflation brings it closer to the Bank of England’s target of 2%, which is also in line with the goals of central banks around the world. It may also encourage the rate-setters to lower interest rates, making borrowing more affordable.
The impact on interest rates is significant, as the higher-than-expected inflation number could discourage a rate cut next month or in August. Another key figure to consider is core inflation, which excludes energy and food prices that are prone to sharp fluctuations. Core inflation currently stands at 3.9%, higher than the forecasted 3.6%, but still a decrease from 4.2% the previous month.
The goal of maintaining a 2% inflation rate is set by central banks to ensure price stability and consumer confidence in making purchases. This rate is considered high enough to avoid consumers postponing purchases in hopes of lower prices, but low enough to provide price certainty.
The market is now anticipating that interest rates will remain unchanged at the next Monetary Policy Committee meeting in June and will potentially be cut at the following meeting in August.
The decrease in inflation can be attributed to several factors, including the recent cut to Ofgem’s energy price cap, leading to cheaper energy bills. Additionally, lower food price inflation, currently at 2.9%, down from a high of 19.2% last year, and the absence of higher tobacco levies in the budget have also contributed to the decrease.
Chancellor Jeremy Hunt commented on the decrease in inflation, stating, “We rightly protected millions of jobs during COVID-19 and paid half of people’s energy bills after Putin’s invasion of Ukraine sent bills skyrocketing – but it wouldn’t be fair to leave future generations to pick up the tab.” He emphasized the importance of sticking to the plan to reduce debt and highlighted the positive economic growth and inflation close to the target.
Prime Minister Rishi Sunak also acknowledged the significance of the decrease in inflation, stating, “This is proof that the plan is working and that the difficult decisions we have taken are paying off.” He reiterated the importance of staying on track to improve economic security and opportunities for everyone.
However, TUC general secretary Paul Nowak expressed concern over the cost of living crisis that he believes is still ongoing. He stated, “Prices are still going up,” and highlighted the higher costs of food, energy bills, and mortgage repayments. He emphasized that while the decrease in inflation is positive, many people are still struggling to afford everyday essentials.
