The UK’s inflation rate dropped to 2.3% in April 2024, driven by lower energy costs and moderated food prices. However, concerns loom over service sector inflation, impacting monetary policy decisions by the Bank of England.
UK Inflation Falls to 2.3% in April, but Service Sector Remains a Concern
The UK’s headline inflation rate dropped to 2.3% in April 2024, marking the lowest level in nearly three years, according to the Office for National Statistics (ONS). This decline follows a rate of 3.2% in March and is attributed primarily to a significant reduction in household energy bills and slower food price increases. Economists had forecasted a fall to 2.1%, making this figure slightly disappointing.
The sharp decline in energy costs played a major role, with prices for electricity, gas, and other fuels decreasing by 27.1% compared to April 2023, the steepest drop since records began in 1989. Additionally, food inflation slowed from 4% to 2.8%, providing some relief to lower-income households.
Despite the headline figure offering a positive outlook, core inflation, which excludes volatile items like food and energy, decreased less than anticipated—from 4.2% to 3.9%—falling short of the expected 3.6%. Moreover, inflation in the services sector, a key focus for the Bank of England (BoE), saw only a minor decrease from 6% to 5.9%. Analysts attribute this to businesses passing on costs from a rise in the National Living Wage, which increased from £10.42 to £11.44 in April.
Bank of England policymakers are closely monitoring service sector inflation, as it indicates domestic price pressures. The BoE’s monetary policy committee, which meets next on June 20, may delay interest rate cuts due to the persistence of these pressures.
Economists like Rob Wood of Pantheon Macroeconomics and Paul Dales of Capital Economics noted that while the overall inflation drop is significant, the resilience of service sector inflation presents challenges for monetary policy. Some analysts now predict the earliest potential cut in interest rates might be in August rather than June.
As the UK continues to navigate through these economic changes, the BoE and other policymakers will need to balance the new inflation data with ongoing wage and price dynamics in the service industry.
