The latest figures from the Office for National Statistics (ONS) showed that UK inflation fell to 2.3% in April, moving closer to the Bank of England’s 2% target.
The Consumer Price Index (CPI) fell to 3.2% year-on-year in March and forecasters had predicted a further decline to 2.1% in April. The actual figure of 2.3 per cent adds to pressure on the Bank of England to cut interest rates from a 16-year high of 5.25 per cent.
Central bank policymakers have been raising interest rates for the past two years to combat inflation, aiming to bring it down to below 2 per cent after it peaked at 11.1 per cent in 2022.
The lower inflation comes just days after Ben Broadbent, deputy governor of the Bank of England, suggested it was possible that interest rates could fall as early as this summer. Speaking on Monday morning, he said it was “possible” that borrowing costs would fall this summer if the economy performed as expected.
Broadbent said the Bank’s nine-member Monetary Policy Committee (MPC), which decides on possible interest rate changes, must assess how wage and services inflation is developing. He added:
“Whatever the priors of its individual members, the MPC will continue to learn from the incoming data and, if things continue to evolve with its forecasts – forecasts that suggest policy will have to become less restrictive at some point – then it’s possible the bank rate could be cut sometime over the summer.”
Earlier this month, Broadbent was among those voting to keep interest rates at 5.25%, with the MPC voting 7-2 in favour of no change.
Economist forecasts
Financial markets had forecast interest rates to fall by August.
Pantheon Economics predicted inflation would reach 2 per cent, while Capital Economics expected it could fall further to 1.9 per cent. The Bank of England’s own forecast was for 2.1 per cent.
Inflation in the UK remained stubbornly high for much of last year, mainly due to rapidly rising import prices.
Craig Fish, director at Lodestone Mortgages & Protection said:
“Close but no cigar, is how this number can be described. A big drop but not as much as hoped or expected by the Bank of England. As a result, it will likely be business as normal at the next MPC meeting resulting in a hold in base rate and misery for those with, or looking for, a mortgage. We live in hope of the next set of data.”
