UK Inflation Drops But Prices Remain High

A customer at the fruit and vegetable section at a Sainsbury's supermarket in Walthamstow, east London, on Feb. 13, 2022. Tolga Akmen/AFP via Getty Images

The UK inflation rate has dropped for the first time in eight months, but prices on basic essentials remain high.

The latest data from the Office of National Statistics (ONS) showed a drop in the Consumer Prices Index (CPI) 12-month inflation rate in April to 10.5 percent, which is lower than November’s 10.7 percent, and down from the peak in October of 11.1 percent.

However, the CPI figures rose by 7.8 percent in the 12 months to April 2023. This compares to 8.9 percent in March.

Electricity and gas prices contributed 1.42 percentage points to the fall in annual inflation in April as last April’s rise dropped out of the annual comparison. Energy prices still contributed 1.01 percentage points to annual inflation.

The prices on bread, cereals, fish, milk, cheese, eggs, sugar, jam, and honey increased, presenting the largest negative contributions to the annual rate.

Food and non-alcoholic beverage prices continued to rise in April and contributed to high annual inflation. At the same time, the annual inflation rate of food and non-alcoholic beverages eased, from 19.2 percent in the year to March 2023, to 19.1 percent in the year to April 2023.

Commenting on the figures, ONS Chief Economist Grant Fitzner said that the rate of inflation was offset partially by increases in the cost of cigarettes and second-hand cars.

“However, prices in general remain substantially higher than they were this time last year, with annual food price inflation near historic highs,” Fitzner added.

In his first big speech since becoming prime minister, Rishi Sunak announced in January that the government will halve inflation this year to ease the cost of living and give people financial security.

The government has introduced extra payments to low-income families in 2023 to help with the cost of living. Brits may be entitled to up to three cost-of-living payments of £301, £300, and £299, provided they meet the eligibility criteria.

The energy support schemes, which pay for parts of the inflated energy bills, have been extended until the end of June.

No Room for Complacency

The inflation target set by the government is 2 percent, which is significantly lower than the current 8.7 percent rate. In his March letter (pdf) to Chancellor Jeremy Hunt, the Bank of England (BoE) Governor Andrew Bailey attributed the increase in CPI inflation to several factors.

Bailey cited the role of the COVID-19 pandemic in pushing up the prices for energy and tradable goods. The consequent recovery was interrupted by “Russia’s invasion of Ukraine, which greatly exacerbated the rise in energy prices as well as wholesale prices of many agricultural commodities,” wrote Bailey.

The BoE expected CPI inflation to fall significantly in the second quarter of 2023 to a lower rate than previously anticipated in the February report.

Services CPI inflation is expected to remain broadly unchanged in the near term, predicted the BoE.

The latest ONS figures showed a rise in the CPI services annual rate from 6.6 percent to 6.9 percent.

In response to the consumer price inflation report, shadow chancellor Rachel Reeves criticised the Conservative government’s performance.

“The reality of today’s inflation figures are soaring food prices staying high and hitting families hard. After 13 years of Tory government, never have people paid so much but got so little in return. Labour will protect family finances and build our economic security,” Reeves said on Twitter.

Chancellor Jeremy Hunt welcomed the drop in the inflation rate and reiterated the government’s plan to halve it.

“Today’s fall in inflation to 8.7 percent - the lowest rate in over a year - shows we’re on the right track, but there is no room for complacency. The IMF said yesterday we have acted decisively to tame inflation, but there is still work to be done - especially on food prices,” Hunt said in a Twitter statement.

The chancellor said the government is working with the BoE to ensure responsible public spending, hold down energy bills, remove barriers to work, and freeze fuel duty.