UK inflation falls to 8.7%

UK inflation has fallen to single digits for the first time this year according to the latest figures released by the Office for National Statistics, easing to 8.7% in April.

CPI inflation rose by 8.7% in the 12 months to April 2023, down from 10.1% in March according to this morning’s figures. On a monthly basis, CPI rose by 1.2% in April 2023, compared with a rise of 2.5% in April 2022.

CPIH inflation, which includes owner occupiers’ housing costs saw a 7.8% rise in the 12 months to April 2023. This was down from the 8.9% recorded in March. When looking at this on a monthly basis, CPIH rose by 1.2% in April 2023, compared with a rise of 2.1% in April 2022.

Electricity and gas prices contributed 1.42 percentage points to the fall in annual inflation in April as last April’s rise dropped out of the annual comparison. However, according to ONS, this component still contributed 1.01 percentage points to annual inflation.

Food and non-alcoholic beverage prices continued to rise in April and contributed to high annual inflation, however, the annual inflation rate of food and non-alcoholic beverages eased, from 19.2% in the year to March 2023, to 19.1% in the year to April 2023.

Market reactions

Adam Thrower, head of savings at Shawbrook, said: “Inflation is finally heading in the right direction and leaving double-digits, which is certainly a welcome relief to all. However, at 8.7% the rate of price growth remains high. For savers, the recent Bank of England decision to raise the base rate represents another opportunity to protect their savings from inflation.

“Now is not the time to sleep on your savings rate. Our research has shown that 47% of savers haven’t switched to a better rate in the last year, largely due to the perceived time and effort needed, meaning apathy could be costing them hundreds if not thousands.

“But switching is quicker and easier than many might think and an effective way to reduce the impact of inflation eroding the value of your savings. With savings rates the highest they’ve been in years, there is no better incentive to shop around for the best deals in the market. “

Paul McGerrigan, CEO at fintech broker, said: “It will come as a significant relief to most that inflation finally reduced by a material number to 8.7 per cent (in April), down from 10.1 per cent in the previous month. It has taken a lot longer than predicted to start its descent.

“Let’s not get too excited, however, the journey back to the target two per cent has only just started and we are in for a bumpy ride.

“Although fuel and energy prices are dropping notably, food prices grew an incredible 17.8 per cent year-on-year in April. Many analysts now forecast five per cent is the best CPI we can expect in 2023 – not the previously mooted three per cent.

“Mortgage borrowers are praying this drop will stop the relentless barrage of interest rate rises and that a watching brief can be adopted by the Monetary Policy Committee. As an increasing number of borrowers see their current mortgage fixed rates end, monthly costs are skyrocketing, putting more pressure on homeowners.

“Let’s hope the corner has been turned.”

George Lagarias, Chief Economist at Mazars, comments: “Overall, headline inflation remains uncomfortably high and, what’s worse, increasingly dynamic. This could lead to more than the two rate hikes the market, perhaps optimistically, expects. Until the Bank of England sees evidence of the vicious price-wage cycle breaking and demand conditions sufficiently tame, we should expect increasingly tighter credit conditions and pressures on consumers and businesses.”

Simon Webb, managing director of capital markets and finance at LiveMore, commented: “High energy prices have played a big part in soaring inflation but that is now falling as are fuel costs. Hopefully, this is the start of inflation heading downwards towards the 2% target although high food prices may make it a slow journey.

“The big question is whether this fall in inflation is enough to stave off another base rate rise. Two out of the nine members of the Monetary Policy Committee voted for not increasing the base rate at the last meeting so there is certainly an appetite for no more rises.

“Of course, inflation is not the only consideration for setting base rate as the wider economic situation and cost of living crisis come into play. Borrowers on tracker rates don’t want to see their monthly repayments go up yet again and UK Finance recently reported a rise in arrears and repossessions – clear evidence that more people are struggling.”

Warren Lewis (Financial Reporter)

Retirement ProfessionalsUK inflation falls to 8.7%