UK inflation drops to 8.7% but food prices continue to rise

In April, consumer prices rose at the slowest pace in an entire year. However, key price measures continued to increase. This is a worrying development for both households and government.

The Office for National Statistics has released official figures showing that headline inflation dropped to 8.7 percent last month, from 10.1% in March. The reading is above the Bank of England’s 8.4 percent projection and economists’ predictions of 8.2 percent.

Inflation is on track to ease in April, as the annual price measure no longer includes the spike in Energy Prices immediately following the invasion of Ukraine in 2014.

The ONS stated that “base effects” on energy contributed to the significant fall in annual inflation, but that second-hand cars and cigarettes kept the prices high.

Food Price Inflation remained alarmingly close to historical highs in April, at 19.1% compared to last year’s same period. Food prices are on the rise, which has affected household budgets. The UK’s Competition Authority is investigating.

The core rate of inflation (which measures the intensity of inflationary pressures excluding energy and food) increased from 6.8% to 6.8%, the highest level in the past 31 years.

The Bank’s preferred measure of services inflation rose from 6.6% to 6.9%, indicating that inflationary pressures within the country are still increasing despite interest rate hikes.

ONS data show that the cost of clothing, household services, restaurants and hotels all increased last month in comparison to April 2022.

In an effort to cool the economy and slow down prices, the Bank of England increased borrowing costs. Investors believe it will need to raise the base rate to 4.75 percent next month and continue the restrictive policy throughout the rest of this year.

Andrew Bailey, Governor of the Bank of England admitted yesterday that there were lessons to be learned following more than a decade of inflationary runaway, which peaked in October at 11,1 per cent but has been slow subsiding.

Models within the Bank of England show that inflation won’t fall as quickly as it did last year. The 2 percent target will only be achievable by 2025. The Bank believes that inflation will continue to drop in the next few months and end the year at about 5%.

The government will welcome the headline reading for April. It has set a goal to halve inflation by the end the year in order to meet its economic promises ahead of an upcoming general election.

Bailey, speaking at the British Chamber of Commerce annual conference this month, said that food inflation will remain high for a longer period of time but warned that it would still fall.

Jeremy Hunt, chancellor of the United Kingdom, stated: “The IMF has said that we have acted decisively in tackling inflation, but it’s positive that it’s now down to single digits. However, food prices continue to rise too quickly.” We must continue to stick to our plan to bring inflation down, even though we are helping families this year with a cost-of-living allowance of around £3,000.

Rachel Reeves is the shadow chancellor. She said, “As the bills continue to rise, families are worried that food prices and other essentials will still be increasing.” The question will be asked why the Tory government refuses to tackle this cost-of-living crisis and why it won’t impose a windfall tax on oil and gas companies’ enormous profits. “Never before have people paid as much in tax and received so little back.”

Capital Economics’ chief UK economist, Paul Dales, wrote in a client note that interest rates would likely be raised from 4.5 to 4.75 percent in June, and perhaps even a little more in the months following, because inflation was sticking out higher than expected by the Bank of England.

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