UK inflation slows to near three-year low

News of sharply lower inflation sets the scene for this year’s general election, as beleaguered British Prime Minister Rishi Sunak’s Conservatives trail the main opposition Labour Party at opinion polls. – Copyright AFP MOHD RASFAN

Roland JACKSON

Britain’s annual inflation rate slowed to a near three-year low in April as energy prices cooled further, official data showed Wednesday, easing a cost-of-living crunch before this year’s general election.

The Consumer Prices Index slowed to 2.3 percent from 3.2 percent in March, the Office for National Statistics revealed in a statement, dashing market expectations of a sharper slowdown to 2.1 percent.

April marked the lowest level since July 2021 when inflation had stood at the Bank of England’s 2.0-percent target. 

The data comes after the BoE this month signalled a summer interest rate cut, after holding borrowing costs at a 16-year peak of 5.25 percent to further dampen price rises.

The European Central Bank and US Federal Reserve are also moving towards cutting borrowing costs as global inflationary pressures subside.

– Election looms –

News of sharply lower inflation sets the scene for this year’s general election, as beleaguered British Prime Minister Rishi Sunak’s Conservatives trail the main opposition Labour Party at opinion polls.

“Today marks a major moment for the economy, with inflation back to normal. This is proof that the plan is working and that the difficult decisions we have taken are paying off,” insisted Sunak, who made cutting inflation a top priority.

However, Labour finance spokesperson Rachel Reeves slammed the Tories’ stewardship of the economy, which emerged in the first quarter from a shallow recession.

“Inflation has fallen but now is not the time for Conservative ministers to be popping champagne corks. Prices have soared, mortgages bills have risen and taxes are at a seventy year high,” Reeves argued.

Prices are still rising on top of the bumper gains seen in recent years but at a far slower rate, with businesses and households weathering a cost-of-living crisis.

That has been worsened by high BoE interest rates which ramp up the cost of loans.

The International Monetary Fund cautioned Tuesday that the BoE should be mindful over when to start cutting rates — or risk harming an economy recently out of recession. 

“We will likely see the BoE hold interest rates for a little longer,” noted ADSS senior market analyst Mahmoud Alkudsi.

“This encouraging inflation data may be the tipping point for the BoE, but they will likely want to see this level of inflation sustained before relaxing their relatively tight fiscal policies.”

– Energy cap –

Inflation slowed rapidly last month after energy regulator Ofgem lowered the price cap on energy bills for most UK households to the lowest level for more than two years.

Food and drink price rises also slowed further to stand at the lowest level since late 2021.

Gas and electricity bills sank in April on lower wholesale energy prices, which had surged in the wake of key producer Russia’s invasion of Ukraine.

The BoE began a series of rate hikes in late 2021 to combat inflation, which rose after countries emerged from Covid lockdowns and accelerated following Russia’s invasion of Ukraine in February 2022.

UK inflation peaked at 11.1 percent in late 2022 and has decelerated sharply since then.

The IMF warned Tuesday that premature rate cuts in Britain could risk higher inflation — but delayed easing could “stall or even reverse” economic recovery.