UK inflation eases more than expected to 2.8%, led by lower electricity and gas bills – business live

Food inflation slows to 3%, led by meat and chocolate; prices of computer game downloads drop sharply; economists say benign inflation data reduces chances of June rate hike

Charlotte O’Leary, associate economist at the National Institute of Economic and Social Research, a think tank, thinks there could be a “precautionary” rate rise later this summer.

Today’s slowdown in April inflation to 2.8% may look promising, but this is likely as low as it gets for some time. The decline relative to March largely reflects base year effects dropping out rather, than any easing of inflationary pressure. We anticipate that inflation will trend higher through much of 2026, heading towards 4% by the end of the year.

With the ongoing Middle East conflict keeping global oil prices elevated, the effects are becoming increasingly visible in UK petrol prices and are beginning to feed through to food prices and household energy bills. The pressure is expected to intensify further in July, with forecasts of a sharp rise in the Ofgem price cap pushing energy costs higher still.

Yes, UK inflation is set to rise again later this year, having dipped below 3% in April. But the data should reassure the Bank of England that last year’s food price spike hasn’t triggered a wave of second-round effects across the inflation basket. Like yesterday’s jobs numbers, the data questions the need for aggressive rate hikes.

We continue to think markets are overestimating the Bank of England’s willingness to tighten policy, at current levels of energy prices. Investors are pricing between two and three rate rises by next spring. Continue reading...