UK inflation falls to 8.7%, but food prices remain stubbornly high

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UK inflation fell sharply to 8.7% in April, but the much smaller-than-expected decline from the Bank of England will add pressure on the central bank to continue raising interest rates.

THE BoE Consumer price inflation is expected to fall from 10.1% in March to 8.4% in April as last year’s energy price hikes slip out of the year-on-year comparison.

While the title rate of inflation likely to decline further this year as gas and electricity prices decline, the jump in the core inflation rate from 6.2% to 6.8% over the same period suggests that there is greater underlying inflationary pressure than as hoped.

Yael Selfin, chief economist at KPMG UK, said “inflationary pressures remain sticky”.

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Paul Dales, UK chief economist at Capital Economics, said that while the decline in the core rate was welcomed, “much more important was the worryingly broad rebound in core inflation.”

This, he said, contradicts expectations of a small decline in underlying price pressures and suggests that “the recent resilience of economic activity appears to be fueling domestic inflationary pressure.”

The BoE said it would raise interest rates again if there were signs of persistence of inflation.

Samuel Tombs, UK’s chief economist at Pantheon Macroeconomics, said the figures had far exceeded expectations and were likely to prompt the central bank’s Monetary Policy Committee to act again. There was “a drop too small [in inflation] that the MPC stop hiking in June,” he said.

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The ONS said that stable energy prices this year compared to sharp increases last year explained the decline in the main tariff, but it was offset by substantial increases in the prices of second-hand cars and cigarettes.

Food price inflation remained close to its 45-year high, at 19.1% in April versus 19.2% in March.

Grant Fitzner, chief economist at ONS, said: “Prices overall remain substantially higher than last year, with annual food price inflation close to historic highs.”

Kitty Ussher, chief economist at the Institute of Directors, said the numbers are worrying, but there’s still a chance that the decline in the headline inflation rate will change sentiment among firms that set prices and wages.

“Policy makers will be hoping that now that the headline rate is back in the single digits, expectations about future inflation will also start to fall, which could then play itself out,” he said.

The UK inflation rate will now be compare unfavorably with those of other major economies above the US, France, Germany and EU average.

In April alone, UK prices rose by 1.2% at a time when gas and electricity bills were frozen. There was an 8% increase in the communications component of inflation as cell phone companies raised rates, often tied to the rate of inflation.

There was another 1.4% increase in food prices, the same increase in rentals and package holidays in the month, and a 6% increase in postage.