The UK’s inflation rate fell in April to 2.4 per cent, its lowest level in more than a year, according to data from the Office for National Statistics (ONS).

Inflation rate falls

The drop surprised analysts, who had been expecting the consumer price index to hold steady at March’s rate of 2.5 per cent. Mike Hardie, head of inflation at the ONS, said, “Inflation continued to slow in April, with air fares making the biggest downward contribution, due to the timing of Easter. This was partially offset by the rise in petrol prices.“Soft drink prices saw their biggest ever rise for this time of year, due to the introduction of the sugar tax. However, many retailers still haven’t passed the impact of the tax onto shoppers. Annual price growth for goods leaving factories was unchanged in April. However, the cost of raw materials increased, mainly driven by strong rises in crude oil prices.“House prices continued to fall in London, seeing their second annual decline since the financial crisis. However, Scotland continued to see strong annual growth.”Sterling fell against both the dollar and euro following the release of the figures with markets uncertain what affect the inflation data would have on any Bank of England decision to increase interest rates later this year.Tej Parikh, senior economist at the Institute of Directors, said, “Although the Bank of England has tended to look past oil price shocks previously, a lot now depends on the economy’s ‘bounce-back-ability’ from a weak start to the year.“A rebound in growth this quarter combined with a persistent impact from higher oil prices may just force the Monetary Policy Committee’s (MPC) hand and lead to rate rises at its August meeting.” 

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Oil prices expected to grow

While Mr Parikh welcomed the latest drop in inflation from a 3.1 per cent high at the start of the year, he warned that underlying price increases in motor fuels were “likely to frustrate consumers and businesses over the coming months”.He added, “With geopolitical tensions pushing up oil prices, higher fuel costs have partly countered the downward effect of weaker currency passing out of the figures, as these costs represent a key outlay for consumers.“The rise in oil prices comes with unfortunate timing. Buoyed by fast-falling inflation, households were becoming increasingly confident about their finances, while businesses were recovering from high import prices. But for the summer months at least, we’re likely to see some continued upward pressure on domestic prices and therefore restraint in consumer spending.”Suren Thiru, head of economics at the British Chambers of Commerce, said, “Inflation surprisingly slowed in April with the main downward pressure to the rate coming from air fares, as a result of the timing of Easter, compared to last year. This more than offset upward pressures from rising fuel prices. The latest data is further confirmation that inflation remains on a downward path.“The increase in producer prices may lead to a short-term uptick in inflation over the coming months, but it is likely to be a temporary rise with the rate continuing its overall trend back towards the Bank of England’s two per cent target.“While we think that interest rates will rise again before the end of the year, we would caution against the sort of sustained tightening in monetary policy recently implied by some MPC members, as it could dampen business and consumer confidence and further subdue UK economic growth. Instead more needs to be done to lift the UK out of its current low growth trajectory, including incentivising long-term business investment.”

Inflation drop potential for short life

And Kevin Doran, chief investment officer at stockbroker AJ Bell, warned that the fall in the inflation rate might not last. “UK consumers will be glad to see average wage increases starting to outstrip inflation and for the spending power of the pound in their pocket pick up further,” he said.“However, the recent weakness in the pound and the rising oil price are a concern and could quickly reverse the drop in inflation. The jump in the oil price has started to hit petrol pumps, pushing up costs for UK consumers and businesses alike. In addition, the weak pound will be driving up input costs for many UK companies, which will ultimately filter through to UK consumers in the coming months.“If inflation does increase, UK consumers will once again start to feel the pinch. Wage growth is currently only marginally ahead of inflation at 2.6 per cent and interest rates on cash savings remain rock bottom so rising prices will weaken the spending power of both earnings and savings.” For related news and features, visit our Enterprise section.Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online Directory 

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