UK inflation remains stubbornly high

Consumer price growth slowed to below 10% for the first time in seven months, but core readings have surged to decades-high levels

UK inflation remains stubbornly high – data

© Getty Images / Sally Anscombe

The UK’s consumer price index (CPI) dropped to 8.7% in annual terms in April but remains higher than expected, according to data published by the Office for National Statistics (ONS) on Wednesday.

The CPI, also referred to as headline inflation, slid below 10% for the first time since August last year, although it is still the second highest in Western Europe after Austria. It also came in above the Bank of England’s (BoE) forecast, which predicted inflation to drop to 8.4% in April.

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,” the ONS said in its report. It added that the rise in food and non-alcoholic beverage prices slowed only marginally, to 19.1% from 19.2% in March, and remained the second-highest in over 45 years.

Despite the drop in headline readings, core inflation – a key indicator which excludes volatile energy, food, alcohol, and tobacco prices – rose by 6.8% in April, to its highest rate since 1992. Experts say this signals that underlying pressures on the economy remain strong, and may lead to more hikes in interest rates.

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,” Paul Dales, chief UK economist at Capital Economics, told Reuters.

Analysts, however, warned that further hikes could be harmful for the country’s economy.

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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,” Suren Thiru from the Institute of Chartered Accountants in England and Wales told CNBC.

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