UK inflation falls less than expected to 2.3% as interest rates warning issued – live

Many people are still facing lower living standards, a think tank has said as it warned that the worst of the cost of living crisis “is not over”.

Ben Harrison, director of the Work Foundation at Lancaster University, said:  “Workers across the country might be quietly relieved that their bills and shopping are rising at the lowest level since 2021.

“But even at 2.3 per cent, inflation remains above the Bank of England’s target and many people will be facing lower living standards for some time to come.

“The truth is the worst cost of living crisis for more than 40 years is not yet over – most workers continue to face energy, food and housing costs that are much higher than three years ago.

“The sting in the tail is interest rates remain at a 16-year high of 5.25 per cent. And while there is no guarantee the Bank of England will cut interest rates soon, low paid and insecure workers are particularly exposed to record private rent increases and higher mortgage payments.”

A cut to interest rates in June is “unlikely” after inflation fell less than expected, the Institute of Chartered Accountants in England and Wales has said.

Suren Thiru, ICAEW economics director, said:  “This underwhelming drop in inflation suggests that the UK is rather stumbling back towards the Bank of England’s 2 per cent target, as lower energy bills had a smaller than expected impact on April’s headline rate.

“Concern over hotter than expected headline inflation is exacerbated by disappointing declines in core and services inflation, which suggest that the problem of underlying price pressures embedded in the wider economy have yet to be solved.

“The headline rate is set to drop markedly over the summer, once the expected decline in Ofgem’s energy price cap cuts people’s energy bills from July.

“Lingering concerns over underlying inflationary pressures mean a June rate cut is unlikely. However, these figures may convince more rate setters to vote to ease policy, providing a signal that a summer rate cut is still possible.”

The Bank of England may want to see a further drop in service inflation before it cuts interest rates, a management consultancy has said.

Matthew Chapman, associate partner at McKinsey & Company, said:  “Service inflation remains high. And there may need to be further downward movements in service inflation, real wage growth and the labour market before the narrative on monetary policy can start to change.

“While sharp drops in energy prices and easing food costs have helped push the CPI reading to a three-year low, prices are still substantially higher than they once were. And households are likely to continue adjusting their budgets as the cost of some everyday staples continues to rise at more than double the current rate of inflation. For example, breakfast cereals are up 7.4 per cent and vegetables like potatoes are up 7.9 per cent with the cost of crisps also rising 7.7 per cent.

“A return to the stable dynamics that prevailed before the Covid-19 pandemic still seems unlikely. Inflation is likely to still persist, growth sluggish and high interest rates may continue to create downward pressure on margins. To protect balance sheets, companies will need to remain vigilant and create opportunities to proactively react to cost and demand changes.”

UK inflation has fallen by lower than expected, despite falling gas and electricity prices, dashing hopes that the Bank of England will lower interest rates at its next meeting in June.

Rishi Sunak has said there is still “more work to do” after inflation fell to its lowest level in three years but remained above what economists predicted.

“I understand that people are only just starting to feel the benefits of the improvements that we have made and that will take time for people to really feel them.” he said.

“But what we are now seeing is that everything is heading in the right direction.”

The prime minister added: “The economy grew in the first quarter of this year, faster than France, Germany and America.

“Wages have been rising faster than prices for almost a year now, energy bills are down hundreds of pounds now from where they were, mortgage rates are down from the peak and today’s news on inflation being back to normal is very welcome.

“If you put all of that together it shows we have got momentum, it shows that the plan is working but of course there is more work to do for people to really feel the benefits of all these things.

“That is why it is important that we stick to the plan. As I have said, these things don’t happen by accident.”

Martin Lewis has predicted that the Bank will cut interest rates in August rather than June following the lower than expected drop in inflation.

Nobody will be feeling better off after the latest inflation figures, the Liberal Democrats said.

Responding to the latest inflation figures, Lib Dem Treasury spokesperson Sarah Olney said: “Nobody will be feeling any better off after today, with families still facing a £9 billion mortgage bombshell this year alone.

“Conservative ministers cannot celebrate today after presiding over the worst cost-of-living crisis in a generation.

“The aftershocks of this crisis will be felt for years to come, and the blame lies squarely with this incompetent government.

“The Conservative party should never again be trusted to manage the British economy.”

The latest inflation data sets the stage for interest rate cuts in coming months, the Confederation of British Industry (CBI) has said.

Alpesh Paleja, CBI lead economist, said: “A big fall in inflation was always on the cards for April, given Ofgem’s 12 per cent cut to the energy price cap. Households and businesses will welcome a more benign inflationary environment, but it’s worth noting that many will still be struggling with a high level of prices, particularly in food and energy bills.

“Today’s data further sets the stage for interest rate cuts in the coming months. While the Monetary Policy Committee is likely to reduce interest rates over the summer, they are still holding out for more definitive falls in measures of domestic price pressures.

“It’s encouraging that pay growth is now a touch below the Bank of England’s forecast, but there’s still a long way for it to get closer to levels consistent with inflation at target.

“The Bank will also be mindful of growing upside risks to inflation in the near-term: with the growth outlook improving at home, and tensions in the Middle East threatening to stoke commodity prices and supply pressures globally.”

The lower than expected drop in inflation may lead the Bank of England to “exert caution” on cutting interest rates, a think tank has said.

Paula Bejarano Carbo, NIESR Economist, said: “Inflation has fallen to its lowest level in almost three years. This is positive news, however inflation remains above the Bank of England’s 2 per cent target and core inflation is still higher than its historical average at 3.9 per cent.

“Paired with last week’s strong wage growth data, we believe that elevated services inflation will remain an upwards risk to inflationary pressures in the second half of this year.

“As a result, the MPC may exert caution at its upcoming meeting and hold interest rates, despite today’s encouraging fall in the headline rate.”

The drop in inflation to near the Bank of England’s target of 2 per cent is “good news” but wages are still catching up with post-pandemic price increases, a think tank has said.

Carsten Jung, senior economist at IPPR said: “Inflation temporarily falling close to the Bank of England’s target is good news, but wages are still catching up with post pandemic price increases. This is why it’s important that the Bank does not hamper the UK’s nascent recovery by leaving interest rates too high for too long.

“The Bank has tightened the screws too much and this will hold back the economy and wage growth going forward. They recently admitted that inflation is falling faster than it originally thought, suggesting an earlier reversal in policy.

“Looking back, it is clear that the government could have done more to shield people from inflation. Other countries like France and Japan were more proactive in easing price increases and did more to stop firms from amplifying inflation via shielding their profits. Especially on profits there are still actions it can take.”