UK inflation sinks below 10% for the first time since August
UK Inflation Drops Sharply in April Amidst Retreat in Energy Prices and Impact of Russian Invasion of Ukraine
The Office for National Statistics has announced a sharp drop in UK inflation for the month of April, as energy prices retreated and the impact of Russia’s invasion of Ukraine began to drop out of the annual consumer price comparison. According to the ONS, headline CPI inflation came in at 8.7% year-on-year, down from 10.1% in March, but above a consensus estimate of 8.2% from a Reuters poll of economists. On a monthly basis, consumer prices rose by 1.2%, which was above a consensus estimate of 0.8%.
The ONS report states that electricity and gas prices contributed 1.42 percentage points to the fall in annual inflation in April, as last year’s rise dropped out of the annual comparison, but it still contributed 1.01 percentage points to annual inflation. Meanwhile, food and non-alcoholic beverage prices continued to rise in April, however, the annual inflation rate of food and non-alcoholic beverages eased from 19.2% in March 2023 to 19.1% in the year to April 2023.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 7.8% in the 12 months to April 2023, down from 8.9% in March, while core CPI (excluding volatile energy, food, alcohol, and tobacco prices) rose by 6.8%, up from 6.2% in March, which will concern the Bank of England.
Despite the UK’s economy defying expectations for a recession, inflation has remained stubbornly high, prompting the Bank of England to hike interest rates 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 continues to remain stickier in the UK than in comparable major economies, while the labor market has stayed tight and Governor Andrew Bailey has warned of a wage price spiral.
As British households continue to contend with high food and energy bills, workers across various sectors have launched mass strike action in recent months amid disputes over pay and conditions.
What is inflation?
Inflation refers to the rate at which the general level of prices for goods and services is increasing and, consequently, the purchasing power of currency is decreasing.
What is CPI and CPIH?
Consumer Prices Index (CPI) is an index of UK consumer price inflation used by the Bank of England to set its monetary policy. CPIH is the CPI index that has been adjusted to take into account the cost of housing for owner-occupiers.
Why is UK inflation dropping?
The drop in UK inflation is attributed to the retreat in energy prices and the annual consumer price comparison dropping the impact of Russia’s invasion of Ukraine.
Why does high inflation concern the Bank of England?
High inflation can lead to a reduction in the value of money, increased borrowing and lending costs, a higher cost of living, and reduced consumer spending, which can negatively impact the economy. The Bank of England uses monetary policy to control inflation and maintain price stability.
For the First Time since August, UK Inflation Dips Below 10%
UK inflation dropped in April as energy prices fell and the impact of Russia’s invasion of Ukraine began to drop out of the annual consumer price comparison. The Office for National Statistics reported that headline CPI inflation came in at 8.7% YoY, down from 10.1% in March but above a consensus estimate of 8.2% from a Reuters poll of economists. The Consumer Prices Index including owner-occupiers’ housing costs (CPIH) rose by 7.8% in the 12 months to April 2023, down from 8.9% in March, while core CPI (excluding volatile energy, food, alcohol and tobacco prices) rose by 6.8%. Experts predict a further hike at the Bank of England’s next meeting as UK inflation remains higher than other major economies, with Governor Andrew Bailey warning of a wage price spiral. British households continue to face financial issues as high food and energy bills persist, while workers in various sectors have gone on strike over pay and conditions.