The latest UK inflation data reveals a sharp fall in April due to receding energy prices and the exclusion of Russia’s invasion of Ukraine from annual consumer price comparisons. The Consumer Price Index (CPI) inflation fell to 8.7% YoY, beating the consensus forecast of 8.2% in a Reuters poll of economists. Electricity and gas prices contributed 1.42 percentage points, while food and non-alcoholic beverage prices continued to rise. Although there was a clear dip in inflation, annual inflation remains high, particularly in the food and non-alcoholic beverages sector. Monthly consumer prices rose 1.2% in April, and core CPI rose from 6.2% in March to 6.8%, a concerning trend for the Bank of England. Despite the economy defying recession expectations, the Bank of England has raised interest rates to 4.5%, and further rate hikes are expected at their next meeting due to stubborn inflation in the UK compared to its major peers.
Workers in various sectors have launched large-scale strikes in recent months amid disputes over pay and conditions, as British households continue to struggle with high food and utility bills. Although the direction is favourable, there is still a long way to go in terms of reducing inflation to single digits. Economics Director at the Institute of Chartered Accountants in England and Wales, Suren Thiroux, expects further sharp declines over the summer, as the UK energy regulator Ofgem cuts the energy price cap and is expected to lower billings from July. However, a sharp decline in inflation is unlikely in the coming months, particularly if inflation persists. The Bank of England will keep the option of further rate hikes on the table as long as core inflation remains high.