UK Inflation Falls to Lowest Rate in 2.5 Years

UK Inflation Hits 2.5-Year Low

April 17, 2024 TruthUSA

Expectations of interest rate cuts by the Bank of England are rising, thanks to further progress in the battle against inflation.

In March, UK inflation dropped to its lowest rate in two and a half years, mainly due to a decrease in food prices.

The Consumer Prices Index (CPI) fell to 3.2 percent last month, down from 3.4 percent in February, which was welcomed by the government.

Prime Minister Rishi Sunak stated, “Inflation has fallen—again. It’s now at 3.2 percent, the lowest it has been in over two and a half years.”

Chancellor Jeremy Hunt highlighted the impact of falling inflation on family budgets in conjunction with other government policies.

Jeremy Hunt said, “The plan is working, and we’re turning a corner. Inflation is falling faster than expected, significantly down from its 11 percent peak. Really welcome news. Alongside our tax cuts, worth around £900 a year to the average worker, people should start to feel the difference in their pay packets.”

Although the government celebrated the reduction in inflation, the Labour party questioned its success in achieving this in March.

Trends

Both the Consumer Prices Index (CPI) and CPI including owner occupiers’ housing costs (CPIH) rose by 3.8 percent annually in March, with the most significant contribution coming from food and non-alcoholic beverages.

Furniture and household goods saw the largest annual price drop since September 2016.

Grant Fitzner, chief economist at ONS, mentioned that despite inflation easing, rising motor fuel prices offset some of the reductions.

The annual inflation rate for petrol remained negative for the thirteenth consecutive month, with the average price per litre increasing between February and March 2024.

In other sectors, restaurants, hotels, and clothing and footwear influenced the annual CPI and CPIH rates to varying degrees.

Interest Rates

The movement towards the Bank of England’s 2 percent target for inflation has bolstered expectations of further interest rate cuts. However, BoE economists advise caution and suggest waiting for more evidence of sustainable inflation easing before making any decisions.

Last month, the Monetary Policy Committee (MPC) chose to maintain the rate at 5.25 percent, with expectations that inflation will reach the target in the second quarter of 2024.

Although the rate has not changed since August 2023, pressure to cut interest rates is increasing due to expectations of a significant drop in inflation in April.

According to the Resolution Foundation, the latest decrease in prices ends the UK’s period as an outlier in terms of inflation.

While UK inflation is still above the Eurozone rate, it dropped below that of the United States for the first time in two years in March.

The U.S. experienced a rise in year-over-year inflation in March, contrasting with the downward trend in the UK.

Simon Pittaway, a senior economist at the Resolution Foundation, noted, “Many economies have struggled through an inflation-driven cost of living crisis over the past two years, but the UK has been an outlier—experiencing a prolonged period of double-digit price rises. With UK inflation finally falling below the U.S., its unwanted outlier status is over.”

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