- UK inflation fell but by less than expected in April and a key measure of core inflation fell little, raising fresh doubts about the Bank of England's plans to cut interest rates in the coming months, which would have given a boost to embattled Prime Minister Rishi Sunak ahead of an election this year.
- The Office for National Statistics said consumer prices in Britain rose at an annual rate of 2.3%, their lowest since July 2021 when they were 2%, but the rate was lower than the increase recorded in March at 3.%.
- The Bank of England and economists polled by Reuters had expected a further decline to 2.1%, and the BoE targets inflation at 2%.
- Services inflation, which the Bank of England watches closely as a barometer of domestic price pressures, rose more than expected. Petrol prices also rose.
- The pound jumped after expectations that the Bank of England will cut interest rates in June receded.
- A further decline in inflation was expected after a 12% fall in regulated household energy tariffs last month.
- “While inflation continues to fall sharply, this latest report will come as a disappointment to the Bank of England and investors who are looking forward to a rate cut in June,” said Luke Bartholomew, chief economist at asset manager Aberdeen.
- “In particular, the strength of core inflation and services inflation, both of which came in slightly higher than expected, will make it difficult for the Bank to feel confident that underlying inflation pressures are abating sufficiently,” he added.
- Service cost inflation fell slightly to 5.9% from 6% in March, with the Bank of England and Reuters poll forecasting a reading of 5.%.
- Core inflation, which excludes energy, food and tobacco, also reflected continued price pressures, with the annual rate falling to just 3.9% from 4.2% in March, and a Reuters poll forecast a reading of 3.6%.
- Recent labor market data has provided mixed news on price pressures, with private sector wage growth, excluding bonuses, falling only slightly in the three months to March.
- The Bank of England fears that rapid wage growth, which accounts for a large part of the service sector inflation rate, could lead to continued high inflation across the economy.
- Sunak, who is struggling to woo voters back to the Conservatives ahead of a national election expected later this year, is seeking to take credit for the fall in inflation.
- “Today marks an important moment for the economy, with inflation returning to normal,” he said in a statement.
- According to data released today, Wednesday, the inflation rate in Britain is lower than the United States, Canada, France and Germany, while Japan has not yet announced inflation data for April, and the inflation rate in Italy is 0.9%.
- However, the UK still ranks poorly among Western European countries in terms of its inflation record since 2020, with consumer prices rising by more than 22% during that period, with the Netherlands, Austria and Germany only slightly worse off.
- Other data from the Office for National Statistics dealt a further blow to Sunak and Chancellor Jeremy Hunt, showing that public borrowing in April was higher than expected, raising questions about their ability to deliver tax cuts to voters before the election.