In April, inflation decreased to 2.8% as a result of Ofgem reducing the energy price cap for many households, according to the Office for National Statistics. The consumer price index fell from 3.3%, with food price inflation also showing a decline.
This drop in inflation is seen as temporary, as the ongoing conflict in the Middle East is anticipated to drive up living costs in the near future. Prior to the conflict, economists had forecasted that inflation would return to the Bank of England’s target of 2%.
Ofgem’s energy price cap was lowered to £1,641 annually in April following measures introduced by Chancellor Rachel Reeves to eliminate certain policy expenses from bills. Analysts from Cornwall Insight have projected a potential increase of over £200 in the price cap by July.
Further initiatives are expected to be announced by Ms. Reeves to alleviate financial strain on households, potentially focusing on additional assistance with energy expenses.
Grant Fitzner, the chief economist at ONS, attributed the decrease in inflation to reduced electricity and gas prices, facilitated by the government’s energy bill support package and lower global energy prices. Various factors, including smaller increases in water bills and Vehicle Excise Duty, also contributed to pulling down the inflation rate.
Reports suggest that supermarkets may be requested to freeze prices of essential items like eggs, bread, and milk to mitigate the impact of the Iran conflict. The Treasury has indicated offering incentives to supermarkets, such as relaxing packaging regulations and postponing costly changes to healthy food guidelines, on a voluntary basis.
Food and soft drink prices rose by 3% in the year leading up to April, down from 3.7% in March, according to ONS data. The potential for inflation to return to the Bank of England’s 2% target in April was disrupted by the Iran conflict, leading to concerns of a further increase to 4% in the summer due to rising fuel and food costs.
The unexpected decline in inflation last month reduces the likelihood of the Bank of England raising interest rates in the upcoming meeting, easing pressure on borrowers. Chief economist Yael Selfin from KPMG suggested that a rate hike in June is now unlikely, with the Bank likely waiting for clearer signs of increased domestic inflation.
TUC General Secretary Paul Nowak emphasized the importance of government actions on energy bills in lowering inflation, highlighting the threat posed by prolonged conflicts on households and businesses.