Decreasing energy prices drive UK inflation to lowest level

Declining gas and electricity prices have forced UK inflation to its lowest level in nearly three years.

The recent drop in inflation signifies that while the prices of goods and services are still rising, they are doing so at a slower rate. 

This deceleration is largely attributed to lower gas and electricity prices, driven by a new, lower price cap that sets the maximum charge for each unit of energy on a standard tariff.

Key Drivers of Inflation Drop

In April, energy prices saw a substantial decline, with a 27% reduction compared to the same month last year. Gas prices alone plummeted by 38%. The decrease in energy costs provided significant relief, reducing the average household energy bill by £238 annually, bringing it down to £1,690. 

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Sarah Coles, head of personal finance at Hargreaves Lansdown, noted that despite this reduction, energy costs remain considerably higher than pre-Ukraine invasion levels, where the cheapest deals were about half the current amount. Nonetheless, this reduction offers substantial relief for many households struggling with expenses.

Easing Prices in Some Areas

Tobacco and food prices also contributed to the inflation drop. Specific food items, including milk, butter, poultry, and fish, became cheaper in April compared to the previous year. 

Coles attributed this to declining fertilizer prices and tougher supermarket negotiations on own-brand items. However, not all food prices fell; items such as olive oil, cocoa, and crisps rose due to poor harvests and high demand.

Rising Costs in Other Sectors

Despite the overall decrease in inflation, costs for mobile phone bills and rents continued to rise, adding to the financial strain on consumers. Services inflation, which includes prices for services like haircuts and train tickets, remained high at 5.9%.

Political Reactions

Prime Minister Rishi Sunak hailed the figures as a “major moment for the economy,” suggesting that inflation returning to normal levels heralds better economic prospects. 

He emphasized the importance of adhering to economic plans to enhance security and opportunity for everyone.

Conversely, Labour’s shadow chancellor Rachel Reeves criticized the government’s reaction, arguing that now is not the time for celebration. She emphasized that many households continue to struggle with the cost of living.

Historical Context of Inflation Surge

The primary driver of the recent high cost of living has been soaring energy costs, exacerbated by global oil and gas price hikes following Russia’s invasion of Ukraine in February 2022. 

This led to a peak inflation rate of 11% in the UK in October 2022, the highest in 40 years, placing significant financial pressure on households and businesses.

Current Economic Outlook

While prices for goods, ranging from food to household appliances, decreased marginally by 0.8% in April compared to the previous year, the persistent high cost of services continues to challenge the economic landscape. 

As the global energy market stabilizes, the hope is for a continued easing of inflationary pressures, potentially leading to a more manageable cost of living for consumers.