UK inflation falls to 0.8% in April on cheaper energy prices

Cheaper energy prices and weakening demand during the coronavirus lockdown depressed UK inflation to its lowest level in three years in April, adding to pressure on the Bank of England to cut interest rates.

Consumer price inflation slowed on an annual basis to 0.8 per cent in April from 1.5 per cent in March despite rising prices for games and hobbies, the Office for National Statistics reported on Wednesday.

This is the first reading below 1 per cent since 2016 and the lowest value since August that year, when prices started to accelerate following the depreciation of sterling that made imports more expensive.

“While the coronavirus limited the availability of some goods and services, its effect on prices was more muted,” said Jonathan Athow, deputy national statistician for economic statistics at the ONS. “Falling petrol and diesel prices, combined with changes to the domestic energy price cap were the main reasons for lower inflation in April.”

Energy prices fell 9.3 per cent in April compared with the same month last year.

With global oil prices falling, the price of goods leaving factories fell over the past 12 months for the first time in nearly four years.

Rising prices for recreational goods, such as games and hobbies, for which there has been high demand during the lockdown, partially offset falling energy prices.

UK core inflation, which excludes energy, food, alcohol and tobacco, slipped slightly, to 1.4 per cent in April from 1.6 per cent in the previous month.

Elsewhere, consumer prices growth in April slowed to an annual rate of 0.4 per cent in the eurozone and 0.3 per cent in the US.

Such a low inflation reading will boost consumer purchasing power and “will definitely invite questions as to whether the UK needs to follow Japan, Sweden and the eurozone in cutting interest rates to below 0 per cent”, said Jeremy Thomson-Cook, chief economist at the financial services company Equals Group. 

The Bank of England’s target is to keep inflation at 2 per cent, but its monetary policy committee’s remit “recognises that the actual inflation rate will depart from its target as a result of shocks and disturbances” linked to the pandemic, the bank stated in its latest monetary policy report.

The ONS said the lockdown made it difficult to calculate the inflation rate because staff could not directly collect 80 per cent of prices usually gathered via visits to outlets, and the basket of goods and services on which the inflation rate is based was not representative of what people bought during the lockdown.

Both the BoE and many economists expect the pandemic to be disinflationary in the short term. “Unemployment will rise sharply and wage growth slow, which we expect to keep inflation well below the BoE’s 2 per cent target,” said Robert Wood, economist at Bank of America. 

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