A general view of the Bank of England in London, Thursday May 9, 2024. The Bank of England has kept its main U.K. interest rate at a 16-year high of 5.25% with several policymakers still worrying about some key inflation measures. (Yui Mok/PA via AP)
LONDON — Inflation in the U.K. fell sharply to its lowest level in nearly three years in April on the back of big declines in domestic bills, official figures showed Wednesday.
The Office for National Statistics said inflation, as measured by the consumer prices index, fell to 2.3 percent in the year to April, down from 3.2 percent in March.
That is the lowest level since July 2021 when the global economy was still being held back by the coronavirus pandemic. The fall also takes inflation nearer to the Bank of England’s target rate of 2 percent and is likely to pile pressure on its nine-member rate-setting panel to cut interest rates from the current 16-year high of 5.25 percent.
The next rate meeting is on June 20 and many economists think the bank will cut borrowing costs. However, others think that ongoing concerns over the scale of price rises in the crucial services sector and the pace of wage increases make an August reduction more likely.
Cost of living still high
Though the latest fall in inflation is welcome, it didn’t drop as far as some economists had hoped. It also doesn’t mean the cost of living crisis — the worst in around 40 years — is over. Lower inflation, after all, just shows that prices are rising more slowly than they were before.
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“Consumers are still living with far higher prices and how you take today’s inflation data will depend on whether your glass is half full or half empty,” said James Smith, research director at the Resolution Foundation.
“While it’s clearly good news headline inflation is back to normal levels, it is disappointing that price pressures haven’t fallen further and that measures of services inflation are proving more stubborn than expected.”
Inflation hit a high above 11 percent at the end of 2022 in the wake of Russia’s invasion of Ukraine, which led to sharp increases in energy costs.
Over the past couple of years, goods and services have risen by 15 percent, with food prices up even more at around 25 percent.
Feel good factor
The Bank of England, like the U.S. Federal Reserve and other central banks around the world, raised interest rates aggressively in late 2021 from near zero to counter price rises first stoked by supply chain issues during the coronavirus pandemic and then by Russia’s invasion of Ukraine.
Higher interest rates — which cool the economy by making it more expensive to borrow, thereby bearing down on spending — have contributed to bringing down inflation worldwide. Figures last week showed that the British economy has started growing again.
Britain’s governing Conservative Party hopes that lower inflation and falling interest rates may trigger a feel-good factor ahead of a general election that has to take place by January 2025. Opinion polls suggest that the main opposition Labour Party is ahead of the Conservatives, who have been in power since 2010.
“Today marks a major moment for the economy, with inflation back to normal,” Prime Minister Rishi Sunak said.