Preliminary data from the Office for National Statistics (ONS) revealed that U.K. inflation eased to 2.8% in April, down from 3.3% in March, and below the 3% expected by economists surveyed by Reuters.
This decline is attributed to a new energy price cap implemented by Ofgem on April 1, which has reduced electricity and gas prices, alongside lower global wholesale energy prices prior to the recent Middle Eastern conflict. Grant Fitzner, chief economist at the ONS, noted that the government's energy bill support package played a significant role in lowering tariffs.
Additionally, smaller increases in water and sewage bills and road tax contributed to the decrease. However, rising food prices, particularly for chocolate and meat, and increased costs for petrol and diesel partially offset these declines.
The U.K. government faces criticism for not doing enough to alleviate energy costs, and Chancellor Rachel Reeves is expected to propose reforms to enhance parliamentary control over energy projects. The Bank of England (BOE) is closely monitoring inflation and potential second-round effects, such as wage demands and increased consumer costs.
Market expectations indicate a 25 basis point rate hike at the BOE's July meeting, raising the Bank Rate to 4%. Yet, with the unemployment rate rising to 5% and concerns over economic fragility, the BOE may choose to maintain current rates at its June 18 meeting.
George Brown, a senior economist at Schroders, cautioned that while inflation has decreased, it could rise above 4% later this year due to higher energy prices, and the central bank must remain vigilant to avoid complacency amid ongoing global supply challenges