U.K. inflation falls to lowest level in more than a year, but food prices remain high
Inflation in Britain has fallen to its lowest level since the immediate aftermath of Russia’s invasion of Ukraine, though elevated food prices mean that it didn’t fall as much as anticipated.
The Office for National Statistics said Wednesday that the inflation rate, as measured by the consumer prices index , dropped to 8.7% in the year to April from 10.1% in March, largely because last year’s energy spike in the wake of the invasion dropped out of the annual comparison. The fall took inflation to its lowest level since March 2022, a month after the war began.
Though welcome, the decline wasn’t as big as anticipated, especially as prices in the wholesale gas market have been falling for months. The consensus in financial markets was that it would ease to 8.3%.
One of the main reasons why inflation is consistently running higher than anticipated — and generally higher than other nations in the Group of 7 — is that food prices remain elevated. The statistics agency said that food prices were still 19% higher than the year before.
“The rate of inflation fell notably as the large energy price rises seen last year were not repeated this April, but was offset partially by increases in the cost of second-hand cars and cigarettes,” the statistics agency’s chief economist, Grant Fitzner, said.
“However, prices in general remain substantially higher than they were this time last year, with annual food price inflation near historic highs,” he added.
Up to 500,000 workers are on strike across Britain in what’s shaping up to be the country’s biggest day of industrial action in more than a decade.
While welcoming the fall in inflation into single digits, Chancellor of the Exchequer Jeremy Hunt said “food prices are still running too high.”
On Tuesday, Hunt held discussions with food manufacturers over the cost of food and ways to ease pressure on households. No measures to ease the burden on households were announced.
“Surging food prices are particularly painful for low-income families, 3 in 5 of whom are already reporting that they are having to cut back on food and other essentials,” said James Smith, research director at the Resolution Foundation.
Overall, Wednesday’s figures back up the International Monetary Fund’s assessment Tuesday that inflation in Britain is likely to remain stubbornly high over the coming years and return to the Bank of England’s target of 2% only in mid-2025, six months later than it had predicted earlier this year.
The U.K. government says it’s ready for legal challenges to a proposed new law intended to stop migrants who cross the English Channel is small boats.
Like other central banks, the Bank of England has been raising interest rates aggressively over the last 18 months or so to a 15-year high of 4.5% after inflation spiked sharply, first because of bottlenecks caused by the COVID-19 pandemic and then Russia’s invasion of Ukraine.
Bank of England Gov. Andrew Bailey on Tuesday reiterated his stance that borrowing costs would have to rise again if inflation remained stubbornly high. He also conceded that policymakers had perhaps been caught off guard by the pace at which food prices have risen and remained elevated since the invasion of Ukraine, one of the world’s most important agricultural nations.
Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, said that a further increase in the bank’s interest rate to 4.75% in June is now “firmly on the table” following the above-consensus April inflation outcome and in light of the “sensitivity of households’ inflation expectations to food price changes.”
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