United Kingdom: Inflation falls to over two-year low in April
Inflation dropped to 2.3% in April, following March’s 3.2%. April’s figure represented the weakest inflation rate since July 2021, but was above market expectations of 2.1% and the Bank of England’s 2.0% target. The cooling of price pressures was primarily driven by Ofgem’s lowering of the energy price cap by 12% starting in April. In addition, inflation for food and recreation and culture ebbed.
In addition, the trend pointed down, with annual average inflation coming in at 5.1% in April (March: 5.7%). Meanwhile, core inflation fell to 3.8% in April, from March’s 4.2%.
Lastly, consumer prices increased 0.33% in April over the previous month, coming in below the 0.59% increase seen in March. April’s result marked the weakest reading since January.
On the outlook and monetary policy implications, UniCredit analysts said:
“Importantly, services inflation only eased slightly, to a still-high 5.9% yoy from 6.0%, which was a large 0.4pp higher than the BoE’s forecast. On this evidence, the BoE is unlikely to cut the bank rate in June and we still expect the first rate cut in August. Headline inflation will likely stay close to 2% in 2Q24 before rising modestly in 2H24 as the downward contribution from energy prices fades.”