UK inflation slows to 2.8% as Bank of England weighs war-driven price risks
Britain's inflation rate eases in April, giving policymakers temporary relief as energy market disruptions from the Middle East conflict cloud the outlook. The lower-than-expected reading comes while the Bank of England assesses whether rising commodity costs will outweigh signs of slower consumer price growth.
Highlights
- UK inflation fell to 2.8% in April from 3.3% in March, below the 3% Reuters forecast, according to the Office for National Statistics.
- The Bank of England kept interest rates unchanged at 3.75% amid energy and commodity price risks tied to Middle East disruptions, with calls for rate hikes.
- Markets now price in at least two rate rises this year, reversing previous expectations of cuts, due to war-driven inflation risks despite soft April reading.
April inflation data and policy backdrop
As reported by Financial Times, data from the Office for National Statistics shows UK inflation falls to 2.8% in April, down from 3.3% in March and below the 3% forecast in a Reuters poll of analysts.The figures arrive as the Bank of England assesses how forcefully to respond to higher energy and commodity prices linked to blockades of the Strait of Hormuz and attacks on infrastructure in the region. Even with April's slowdown, economists still widely expect the conflict to push price growth higher in the coming months.
The Monetary Policy Committee keeps interest rates unchanged at 3.75% at its April meeting. Chief economist Huw Pill has called for an immediate rise in borrowing costs.
Market implications for rates and prices
Before the U.S. and Israeli attacks on Iran in late February, the Bank of England is preparing to cut interest rates. Markets now price in at least two rate increases this year as investors respond to the inflation risks created by the war.The latest inflation reading suggests domestic price pressures are softer than expected for now, but the broader energy shock continues to pose a risk to households, companies and monetary policy. That leaves the central bank balancing a near-term slowdown in inflation against the prospect of renewed price acceleration.
Our earlier report on the UK Treasury’s proposed voluntary caps on essential grocery prices outlined plans to encourage major supermarket groups to limit prices on staples such as bread, milk and eggs, potentially in exchange for looser packaging rules and delayed regulation changes. It also noted strong pushback from retailers and industry groups, who warned that higher taxes and compliance costs were key drivers of food inflation and that caps could trigger broader knock-on effects across the market.
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