UK inflation unexpectedly falls to 13-month low
Inflation fell unexpectedly in April, casting doubt on when the Bank of England will next decide to increase interest rates.
Annual consumer price inflation eased to 2.4% from 2.5%, official figures showed. The April figure was the weakest since March 2017 and lower than economists’ average forecast for inflation to hold steady at 2.5%.
The Office for National Statistics said air fares were the biggest contributor to April’s fall due to the timing of Easter. That decline was partly offset by rising petrol prices.
Soft drinks had their biggest rise ever for the time of year, caused by the introduction of the sugar tax. But the ONS said many retailers still had not passed the cost on to shoppers.
Lower-than-forecast inflation gives the Bank of England further food for thought after its monetary policy committee held off on increasing interest rates in May.
Many economists now expect the BoE to raise rates in August but Governor Mark Carney has said he wants to check if a slowdown in the first quarter was a blip. The BoE has signalled its readiness to increase borrowing costs because it expects wage growth to push up prices.
As the MPC's inflation report earlier this month had forecast CPI would slip, Ruth Gregory, UK economist at Capital Economics said: “There were no surprises here for the committee … A rate hike in August still looks a close-run thing. However, provided that activity data rebounds in Q2 as we expect, we continue to think that it is more likely than not.”
Sam Tombs at Pantheon Macroeconomics said he thinks inflation has hit a floor for now, holding steady in May before jumping to 2.7% in June as consumers endure rises in motor fuel, electricity and natural gas prices.
"The MPC, by contrast, expects inflation to rise only to 2.5% in June, partly because its forecast was conditioned on a $71 oil price, $8 below its current level. Provided GDP growth recovers in Q2, June’s inflation data likely will be strong enough to persuade a majority of MPC members to vote to raise rates in August, rather than wait until later in the year."