According to new data published Wednesday by the UK’s Office for National Statistics (ONS), the UK consumer price index (CPI) fell to 8.7% in annual terms for April, however it remains higher than expected.
The CPI, which is also known as headline inflation, fell below 10%, the first time since August it has done so. However it remains the second highest in Western Europe, behind Austria. The reading also came in above the the forecast from the Bank of England (BoE), which had been for a reading of 8.4% in April.
In its report, the ONS said, “Electricity and gas prices contributed 1.42% to the fall in annual inflation in April as last April’s rise dropped out of the annual comparison, but this component still contributed 1.01% to annual inflation,” adding that the increase in food and non-alcoholic beverage prices decreased only marginally from 19.2% in March to 19.1%, and continued to be the second-highest in more than 45 years.
Although the headline readings fell, core inflation, which removes the volatile food and energy measures from the reading to give a better idea of the overall trends, increased by 6.8% in April, hitting its highest reading since 1992. Experts note that this indicates underlying forces are continuing to pressure the economy, and may make interest rate increases more likely in the future.
Paul Dales, chief UK economist at Capital Economics, said in an interview with Reuters, “With inflation proving stickier than the BoE expected, it now seems all but certain that the bank will raise interest rates from 4.50% to 4.75% in June and perhaps a bit further in the months after.”
Experts warn, however that the economy may not be able to sustain further rate hikes.
Suren Thiru from the Institute of Chartered Accountants in England and Wales, said in an interview with CNBC, “April’s decline in inflation is large enough for the Monetary Policy Committee to keep interest rates on hold next month, but if they continue to risk over tightening, it could worsen the cost-of-living crisis and the squeeze on businesses.”
