UK inflation drops sharply but not quite as much as expected

Proactive Investors – UK inflation softened sharply last month due to lower electricity and gas prices, but did not ease as much as economists had expected.

The UK consumer price index in April was up 0.3% over the month, figures from the Office for National Statistics showed, which was down from 0.6% in March.

This meant the headline annual CPI rate eased to 2.3% from 3.2% in March, meaning it is not far off the Bank of England’s 2% target and could mean interest rate cuts are around the corner.

But, on average, economists forecast a monthly CPI rate of 0.1%, leading to the annual CPI rate dropping to 2.1%.

Core CPI, which includes more volatile prices such as on fuel and food, eased to 3.9% from 4.2%, but again not as much as forecast, with a figure of 3.6% predicted.

ONS chief economist Grant Fitzner said the large fall in annual inflation was due to the reduction in the Ofgem energy price cap.

“Tobacco prices also helped pull down the rate, with no duty changes announced in the budget. Meanwhile food price inflation saw further falls over the year. These falls were partially offset by a small uptick in petrol prices,” he said.

“The prices of goods leaving factories have risen a little over the last year” Fitzer added, with the producer price index up 1.1% in the year to April, up from a revised increase of 0.7%.

“Meanwhile, the prices of raw materials and fuels grew in the last month, though they remain below where they were a year ago,” he said, as input prices fell by 1.6% in the year to April, compared to a fall of 2.5% a month earlier.