UK inflation data paints a picture of the British economy.
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LONDON – UK inflation fell sharply in April, as energy prices retreated and the impact of Russia’s invasion of Ukraine began to drop out of the annual consumer price comparison.
Headline CPI inflation came in at 8.7% year-on-year, the Office for National Statistics said Wednesday, up from 10.1% in March but above a consensus estimate of 8.2% from a Reuters poll of economists.
“The price of electricity and gas contributed 1.42 percentage points to the decrease in annual inflation in April because the increase of last April fell from the annual comparison, but this component still contributed 1.01 percent points in annual inflation,” the ONS said in its report.
“The prices of food and non-alcoholic beverages continued to rise in April and contributed to high annual inflation, however, the annual inflation rate of food and non-alcoholic beverages decreased, from 19.2% in the year to March 2023, to 19.1% in the year to April 2023.”
However, the ONS said that indicative modeled estimates suggest that the annual inflation rate for food and non-alcoholic drinks is still the second highest seen for more than 45 years.
On a monthly basis, consumer prices rose 1.2%, above estimates of 0.8%.
The Consumer Prices Index including owner housing costs (CPIH) rose 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) rose to 6.8%, from 6.2% in March, which will worry the Bank of England.
British inflation remained stubbornly high even as the economy defied expectations for a recession, prompting the Bank of England on interest rate hike for the 12th consecutive time to 4.5% at its last meeting earlier this month.
Economists widely expect a further hike at its next meeting as inflation remains stickier in the UK than in similar major economies, while the labor market remains tight and Governor Andrew Bailey warned of rising wages.
On Tuesday, Bailey acknowledged to lawmakers that there were “enormous lessons to be learned” from the Bank’s failure to forecast the strength and sustainability of inflation.
As British households continue to face high food and energy bills, workers in various sectors have launched mass strike action in recent months amid disputes over pay and conditions.
Right direction, but a ‘long way’
British Finance Minister Jeremy Hunt erred on the side of caution in his response to the data, telling the BBC on Wednesday that the headline rate drop was “welcome news,” but there were “things underneath the numbers that show this fight is far from over. from above.”
He added, “We have a long way to go.”
Suren Thiru, economics director of the Institute of Chartered Accountants in England and Wales, said the return to a single-digit headline rate suggested the UK had “turned a corner” in the fight against inflation.
He expects more big falls in the summer, as UK energy regulator Ofgem is expected to reduce the energy price cap, pushing up rates from July.
“The drag on consumer demand from a cooling jobs market, higher taxes and the lagged impact of rising interest rates could mean inflation falls faster than the Bank of England had predicted ,” he said.
“The decline in inflation in April was enough for the Monetary Policy Committee to keep interest rates on hold next month, but if they continue to risk overtightening, it could worsen the crisis in the cost of living and the pressure on businesses.”
Richard Carter, head of fixed interest research at Quilter Cheviot, also said Wednesday’s fall showed things were going in the “right direction,” but noted there was still an “incredibly long way to go.” will go” because inflation remains “eye-wateringly. high.”
However, Carter suggested that such a sharp decline is unlikely in the coming months, especially if the The IMF’s recent forecast of a stronger UK economy precisely.
“While the Bank of England has made no promises that it is nearing the end of its hiking cycle as far as interest rates go, it will be relieved to see inflation finally come down,” said Carter.
“As long as wage growth continues to improve, the Bank will keep the option of further interest rate hikes firmly on the table – and especially if core inflation remains persistently high.”