In a landmark moment for the UK economy, the rate of inflation has plummeted to 2.3% in the year to April, its lowest point in almost three years. The latest data from the Office for National Statistics (ONS) brings the Consumer Prices Index (CPI) within a hair's breadth of the Bank of England's official 2% target, a significant milestone after a prolonged period of soaring prices.
The dramatic fall from March's 3.2% rate was driven largely by a sharp decline in the energy price cap, which offset stubbornly high prices in sectors like services. This development is a major win for households and policymakers alike, signalling a potential turning point in the long-running cost of living crisis.
Services Sector Inflation Remains Sticky
Despite the positive headline figure, underlying pressures persist. Core inflation, which excludes volatile items like energy, food, alcohol, and tobacco, remains elevated at 3.9%. Furthermore, inflation in the services sector—a key indicator watched closely by the Bank of England—only dipped slightly to 5.9% from 6.0%.
This 'stickiness' suggests that while the overall trend is positive, the battle against inflation is not entirely over. The Bank's Monetary Policy Committee (MPC) will be scrutinising this data intensely ahead of its next interest rate decision.
What This Means for Interest Rates and Your Mortgage
The sharp drop in inflation immediately fuels speculation about the timing of the first interest rate cut. Financial markets and economists are now intensely debating whether the Bank of England will act as early as its next meeting on June 20th or if it will wait until August to ensure inflationary pressures are fully under control.
A cut to the current 5.25% base rate would provide relief for millions of homeowners on variable-rate and tracker mortgages. It would also lower borrowing costs more broadly, offering a boost to the economy.
Mixed Measures: RPI and CPIH Also Fall
The positive news extends beyond the main CPI measure. The Retail Prices Index (RPI), a separate gauge of inflation, also fell significantly to 3.3% in April, down from 4.1% in March.
Meanwhile, CPIH—which includes owner-occupiers' housing costs and is the ONS's lead measure—fell to 3.0% from 3.8% the previous month, providing further evidence that the inflationary tide is receding across the board.
While the journey back to the 2% target marks a critical economic milestone, the path forward requires careful navigation. The Bank of England must now balance the need to support economic growth with the imperative of ensuring inflation does not become entrenched once more.
