UK inflation falls to 2.3 percent, lowest in three years

Britain’s inflation rate slowed last month to the lowest level in nearly three years, edging closer to the Bank of England’s 2 percent target.

Consumer prices rose 2.3 percent in April from a year earlier, up from 3.2 percent in March, the Office for National Statistics said on Wednesday. The rate, which fell slightly less than economists expected, was the lowest since July 2021.

It was backed by a drop in the cap on household energy bills set by a government regulator. Food inflation also slowed to 2.9 percent from 4 percent.

The sharp fall in headline inflation, moving closer to the central bank’s target, signals a new phase in British policymakers’ battle against inflation. After aggressively raising interest rates as prices surged following pandemic lockdowns and turmoil in energy markets following Russia’s invasion of Ukraine, central bankers are trying to determine how much inflationary pressure is left in the economy and how quickly they can cut rates. of interest.

It is a challenge shared by other major central banks. In the eurozone, officials have signaled that a rate cut could come as soon as this summer, while in the United States, inflation remains relatively hot.

In Britain, the central bank expected inflation to fall to 2.1 percent this month, then rise slightly higher and hover around 2.5 percent for most of the rest of the year. But policymakers are looking at utility prices and wage growth, traditionally stubborn components of inflation, which remain uncomfortably strong at just under 6 percent annual growth.

Policymakers have indicated that as long as inflation broadly tracks their latest forecasts, rate cuts could begin within months. Two members of the rate-setting committee have already voted for the cuts.

On Tuesday, Kristalina Georgieva, managing director of the International Monetary Fund, said the institution was delivering some good news for the UK as it completed its annual review of the country’s economy.

After an unexpectedly strong exit from a recession earlier this year, the fund raised its forecast for Britain’s economic growth this year to 0.7 percent, from 0.5 percent a month earlier. For 2025, it predicts 1.5 percent growth, with interest rates falling and wages rising faster than inflation.

Actions taken by the British government and the Bank of England, combined with favorable developments in energy prices, are paying off, Ms. Georgieva said at a press conference in London. The economy is growing, inflation is falling and a slight easing is on the horizon, she said, referring to a situation in which inflation slows without a painful recession.

The fund expects inflation in Britain to have a steady return to target by early 2025 and recommends cutting interest rates from 5.25 percent to 4.75 percent or 4.5 percent this year, and by another 1 percentage point next year. next.

But the longer-term outlook for Britain’s economy was gloomier. Weak labor productivity and the number of people out of the labor market due to long-term health problems are weighing on the outlook, the fund said.

The fund also warned that British officials may have to make tough choices to stabilize public debt, due to demands for increased public spending and investment. He advised against more tax cuts as a general principle, even though the ruling Conservative Party has stated its ambition to cut taxes further ahead of a general election due within the next eight months.