UK inflation falls to 8.7%, but 'food prices still rising too fast'

Chancellor Jeremy Hunt says while fall is positive, government needs to 'stick to the plan' to get it lower

The Office for National Statistics said UK inflation fell to 8.7 per cent in April.

The annual rate of inflation in the UK fell to 8.7 per cent in April, compared with 10.1 per cent the month before, according to the Office for National Statistics.

Economists had expected the April figure for the Consumer Price Index (CPI) to come in lower, while the Bank of England predicted an inflation number of 8.4 per cent.

Nonetheless, this is the first time in eight months that UK inflation has been in single digits, after hitting a 41-year high in October last year.

"The rate of inflation fell notably as the large energy price rises seen last year were not repeated this April, but was offset partially by increases in the cost of second-hand cars and cigarettes," ONS chief economist Grant Fitzner said.

"However, prices in general remain substantially higher than they were this time last year, with annual food price inflation near historic highs."

Stuart Cole, chief macro economist at Equiti Capital, said the battle to contain rising prices in the UK was "far from over".

He told The National that the Bank of England may need to consider raising interest rates further as it awaits evidence that the inflation crisis is easing.

"On the back of today’s numbers, that evidence looks very hard to find as of yet," he said.

Food prices are still increasing, but the rate of food inflation dropped slightly – in the year to April, prices rose 19.1 per cent, down from 19.2 per cent in March.

Energy costs contributed 1.4 per cent of the fall in overall inflation, as last April's spike in electricity and gas prices dropped out of the annual comparison. Nonetheless, energy costs still contributed 1.01 percentage points to annual inflation, the ONS said.

“I promised when I took office that I would halve inflation, and today we’ve received the encouraging news that it has fallen. But it is still too high," Prime Minister Rishi Sunak said.

"So we’ll continue to target the pressures that push inflation up and continue taxing the extraordinary war-time windfall profits of oil and gas companies."

'Stick resolutely to the plan'

Chancellor Jeremy Hunt appeared to rule out tax cuts in the near future as he stressed the need to tackle inflation.

"A tax cut is putting money in people's pockets so they can spend more.

"The biggest way that I can put money in people's pockets so they have more to spend is to halve inflation because that is eroding 10 per cent of the value of people's pay packets or has been over the last year,” Mr Hunt said.

"If we want to cut taxes in the long run, as all Conservatives want to do, because I believe in a low-tax economy, number one task is to get inflation down."

Mr Hunt added: "the International Monetary Fund (IMF) said yesterday we've acted decisively to tackle inflation, but although it is positive that it is now in single digits, food prices are still rising too fast. We must stick resolutely to the plan to get inflation down."

Rachel Reeves from the opposition Labour Party said: "As bills keep surging, families will be worried food prices and the cost of other essentials are still increasing.

"They will be asking why this Tory government still refuses to properly tackle this cost-of-living crisis, and why they won't bring in a proper windfall tax on the enormous profits of oil and gas giants.

"The reality is that never have people paid so much in taxes and got so little in return.

"Our economy is constantly lurching from crisis to crisis, when we should be protecting family finances and building our national economic security here in Britain."

A food market in London. Despite the fall in overall inflation in April to 8.7 per cent, food prices remain high. EPA

'Mini sigh of relief'

While the expected drop in inflation into single digits was widely welcomed, it is unlikely to feel much better for businesses and household budgets.

"It’ll take a while for people to feel this in their pockets, particularly with food-price inflation and generalised inflationary pressures still strong," said Alpesh Paleja, the lead economist at the Confederation of British Industry.

Alice Haine, personal finance analyst at Bestinvest, said while households could "breathe a mini sigh of relief", consumers should not expect a major change to their disposable incomes.

"The lower inflation figure is more about comparing apples with apples than retreating prices," she said.

"This is because April’s Consumer Prices Index is compared to the same month in 2022 when the energy price cap increased by a whopping 54 per cent.

"With the astronomical jump in household energy bills now falling out of the annual comparison, it explains why the headline inflation figure has fallen sharply.

"In reality, energy prices are actually higher this quarter, with the typical bill capped at £2,500 [$3,106] by the temporary Energy Price Guarantee, compared to £1,971 set by Ofgem’s energy price cap in the second quarter of 2022.

"Another area applying major pressure on household budgets is the cost of grocery shopping, with food and non-alcoholic beverage inflation easing slightly on the year to 19.1 per cent – making it hard for households to pay for the supermarket shop," she added.

Susannah Streeter from Hargreaves Lansdown said that inflation has "soared up like an eagle and taken a ferocious bite out of our standard of living, but it’s coming down at a snail’s pace and leaving a sticky trail of prices in its wake".

British Chancellor of the Exchequer Jeremy Hunt reiterated that the government must 'stick to the plan' to tackle inflation. EPA

Core of the problem

Some economists said the fall in the headline figure should not obscure some of the more worrying aspects of the inflation figures.

Core CPI inflation, which strips out energy and food costs, rose by 6.8 per cent in the 12 months to April 2023, up from 6.2 per cent in March, which is the highest rate since March 1992, according to the ONS.

“The fall in the headline rate will reassure business leaders who are hoping that we may now be through the worst of the inflationary peak. However, today’s data will still be a worry to policymakers," said Kitty Ussher, chief economist at the Institute of Directors.

“Policymakers will hope that now that the headline rate is back to single digits, expectations of future inflation will now start to fall as well, which then could become self-fulfilling.”

London's FTSE 100 Index slumped by 1.6 per cent as the inflation surprise led to bets of more rate rises to come.

Rates are at 4.5 per cent after 12 successive hikes to try to curb the cost crisis. Financial markets are pricing in rates to peak near 5.5 per cent.

Updated: May 24, 2023, 2:17 PM