UK Inflation Falls to Lowest in Three Years: What It Means for You
Inflation in the UK has dropped to its lowest level in nearly three years. This change is mainly due to falling gas and electricity prices. Official figures show that prices rose by 2.3% in the year to April, down from 3.2% the previous month.
Although inflation is falling, it is still higher than the Bank of England’s target of 2%. The Bank has hinted that interest rates might be cut this summer. Currently, these rates are at 5.25%, the highest level in 16 years.
It’s important to note that lower inflation doesn’t mean prices are dropping. It just means that prices are rising more slowly. The decrease in inflation is largely because of lower energy costs. In April, energy prices were 27% lower than they were a year ago. Gas prices alone dropped by 38%.
Besides energy, easing prices for tobacco and food also helped reduce inflation. However, costs for mobile phone bills and rents are still rising. Sarah Coles from Hargreaves Lansdown mentioned that energy prices remain high for the average household, despite the drop. She noted that prices are still much higher than before the Ukraine invasion.
Some foods, like milk, butter, poultry, and fish, were cheaper in April compared to last year. This is due to falling fertilizer prices and tougher supermarket negotiations. However, prices for items like olive oil, cocoa, and crisps went up due to poor harvests and high demand.
Prime Minister Rishi Sunak called the drop in inflation a “major moment for the economy” and expressed optimism about the future. In contrast, Labour’s shadow chancellor Rachel Reeves urged caution, suggesting it’s not time for celebrations yet.
While prices for goods fell by 0.8% in April compared to last year, services inflation, which includes costs for things like haircuts and train tickets, remained high at 5.9%. High energy costs have been a major factor in the cost of living crisis, affecting both households and businesses.
Following Russia’s invasion of Ukraine in February 2022, global gas and oil prices surged. This led to UK inflation peaking at 11% in October 2022, the highest rate in 40 years. The Bank of England expects inflation to fall closer to its target soon but wants more evidence before cutting rates.
Interest rates set by the Bank of England influence the rates set by High Street banks and lenders. Higher rates mean borrowing costs more, but savers get better returns. While a rate cut might seem like good news, those with mortgages may find it less encouraging.
Experts suggest an August rate cut is more likely than one in June, especially since services inflation barely fell in April. Financial market expectations for a June rate cut have dropped significantly.
To manage energy bills during warmer months, Sarah Osborn offers these tips:
- Lower your boiler temperature if the hot water is too hot.
- Manage draughts around your home.
- Limit your showers to four minutes.
These simple steps can help keep your energy use and bills down.
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