UK inflation fell to 2.8% in the year to April, down from 3.3% in March, although it remains above the Bank of England’s 2% target. The fall was larger than expected and was largely driven by lower household energy bills following a reduction in the Government’s energy price cap.
While inflation has fallen significantly from the 11.1% peak recorded in October 2022, prices are still rising at a slower rate. Core inflation, which excludes more volatile items such as food and energy, also eased to 2.5% in April from 3.1% the previous month.
However, the outlook remains uncertain. Rising global energy costs, linked to tensions in the Middle East, are expected to put renewed pressure on inflation over the coming months. Higher wholesale gas and oil prices are already expected to feed into household energy bills when the next price cap takes effect.
Food inflation has also eased, falling to 3% in April from 3.7% in March. However, manufacturers warn that higher costs throughout the supply chain could push food price inflation higher later in the year.
Inflation remains a key factor in the Bank of England’s interest rate decisions. Higher inflation often leads to higher interest rates, making borrowing more expensive and encouraging saving, which can help slow price rises. However, higher rates can also weigh on economic growth by increasing mortgage costs and reducing business investment.
The Bank has cut interest rates several times since August 2024 in response to weak economic growth and a softer labour market. However, policymakers have recently become more cautious as inflation risks have increased. Future decisions will depend on whether inflation continues to fall or begins to rise again as higher energy and food costs work their way through the economy.
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