Inflation in the United Kingdom fell to 2.8% in April, driven by a reduction in Ofgem's energy price cap for millions of households, according to official data. The consumer price index (CPI) dropped from 3.3% in March, the Office for National Statistics (ONS) reported, also noting a welcome decrease in food price inflation.
Temporary Relief Expected
However, economists caution that this reprieve may be short-lived, as the ongoing conflict in the Middle East is expected to drive living costs higher in the coming months. Prior to the war, analysts had predicted inflation would ease back to the Bank of England's 2% target. Industry experts at Cornwall Insight have forecast that Ofgem's price cap could increase by more than £200 per year in July.
In response to rising costs, reports suggest that supermarkets may be asked to freeze prices on essential goods such as eggs, bread, and milk to mitigate the impact of the Iran war. According to the Financial Times, the Treasury has indicated it would offer supermarkets "incentives" in return, which could include easing packaging policies and delaying costly changes to healthy food regulations. These measures would be voluntary and would not replicate the strict price controls of the 1970s inflation crisis.
Food Inflation Eases
The ONS reported that food and soft drink prices rose by 3% in the 12 months to April, down from 3.7% in March. Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, described the figures as "bittersweet" for policymakers, noting that inflation would likely have fallen to the Bank's 2% target had the Iran conflict not shifted the UK's economic outlook from disinflation to stagflation.
Thiru added: "This decline could be the final fall in inflation this year, with surging fuel and food costs set to push it to 4% this summer, particularly as July's Ofgem price cap reset will mean eyewatering increases in household energy bills."
