UK inflation slows in April as consumer price growth drops to 2.8%

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UK inflation slows to 2.8%

Highlights

UK consumer price inflation slowed to 2.8% in April from 3.3% in March, undercutting economists' expectations of a 3.0% rate.
Bank of England's latest forecasts indicate inflation could reach 6.2% early next year under worst-case energy price shock scenarios triggered by the U.S.-Israeli war on Iran.
Markets are pricing in two BoE rate hikes in 2024, while recent data showed a sharp fall in payrolled employment and slowing wage growth.

April inflation reading and policy backdrop

As reported by Reuters, official figures published on Wednesday show British consumer price inflation slows to 2.8% in April from 3.3% in March.

Economists polled by Reuters had mostly expected inflation to soften to 3.0%, largely because steep increases in utility and other regulated prices in April last year have dropped out of the annual comparison.

Before the U.S.-Israeli war on Iran begins on February 28, the Bank of England says inflation in Britain, which has been the highest among the Group of Seven economies for much of the last four years, is likely to be close to its 2% target in April. But the energy price shock from the war prompts the BoE to raise sharply its inflation forecasts and it says inflation could hit 6.2% early next year under its most inflationary scenario.

Rate outlook and cost-of-living implications

British finance minister Rachel Reeves is expected to announce on Thursday further measures aimed at reducing the cost of living, including a possible cancellation of a fuel duty increase due to take effect in September.

The finance ministry is also pressing supermarket chains to introduce voluntary price caps on key food products in return for easing some regulations, according to two people with knowledge of the situation cited in the report.

For the BoE's rate-setters, the main question is whether the expected rise in headline inflation creates more persistent price pressures across the economy. Several policymakers say a weak jobs market could make it harder for workers to demand higher pay and for businesses to pass on higher costs.

Preliminary tax office data published on Tuesday show a sharp fall in payrolled employment and weaker pay growth, while wage settlement figures published earlier on Wednesday also point to slower pay growth. Financial markets on Tuesday are betting on two quarter-point interest rate rises by the BoE this year, with a chance of a third, while a Reuters poll published last week shows most economists expect no change in rates in 2026.

Our earlier article on the UK Treasury’s proposed voluntary caps on essential grocery prices explained that ministers were urging major supermarket groups to limit prices on staples such as bread, milk and eggs, potentially in return for looser packaging rules and a delay to planned healthy-food regulation changes. It also highlighted strong pushback from retailers and industry groups, who warned that higher taxes and regulatory costs were key drivers of food inflation and that price caps could have wider knock-on effects across the market.

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