UK's April Inflation Rate Drops Less Than Expected, June Rate Cut Unlikely

Inflation in the United Kingdom dropped by 2.3% in April 2024.

Even though the figure is significantly lower than 3.2% in March 2024, the drop is still less than expected.

On 22nd May, the Office for National Statistics (ONS) released official figures for April and highlighted that the Consumer Prices Index (CPI) rose 2.3% in the 12 months to April. 

On a monthly basis, CPI rose by 0.3% in April 2024. The rise is much lower than that of 1.2% in April 2023.

The largest contribution to the downturn in the CPI annual rate for last month can be attributed to a drop in the prices of gas, electricity and other fuels.

Meanwhile, a rise in owner occupiers’ housing (OOH) costs has led to an upset to the expectations of economists who speculated that inflation could drop to as low as 2.1% in April. 
 

Nonetheless, the annual inflation rate in April 2024 was the lowest since September 2021 when it stood at 2.9%.

The UK has a lower rate of inflation than the United States, Canada, France and Germany.

Its most recent peak was 11.1% that it touched in October 2022, the highest rate in over 40 years. The most obvious reasons for the crisis were the Coronavirus pandemic and the Russia-Ukraine conflict.

ONS Chief Economist Grant Fitzner commented on the latest inflation data -

“There was another large fall in annual inflation led by lower electricity and gas prices, due to the reduction in the Ofgem energy price cap.”

The release of the inflation statistics led to a rather negative impact on the market as the Financial Times Stock Exchange 100 (FTSE 100) Index has been reflecting a stagnant movement since last day.

It was trading at 8371.04 points at press time. 
 

Source: London Stock Exchange/FTSE 100 Index

 

Since the fall in inflation rate in April 2024 is lower than expected, it has put to rest any possibility that the Bank of England, the country’s central bank, is going to cut interest rates in June 2024. 

Economy to be a Major Battlefield for the National Elections

Prime Minister Rishi Sunak released a statement on the inflation statistics"

 “Today marks a major moment for the economy, with inflation back to normal. This is proof that the plan is working and that the difficult decisions we have taken are paying off.”

The same day, PM Sunak also announced that the country will hold its national elections on 4th July 2024, earlier than many expected.

Sunak’s Conservative Party is looking to woo voters to choose the incumbents even though they might face a defeat this election.

Rachel Reeves, the Labour Party's finance spokeswoman and the Shadow Chancellor of the Exchequer, urged voters to trust the opposing Labour Party:

“Prices have soared, mortgages bills have risen and taxes are at a seventy year high. Only Labour can be trusted to protect and improve family finances.”

 

Reeves reacted negatively to the latest inflation statistics. She commented on X that even though inflation has fallen, it’s no time for the Conservatives to celebrate.

Remember that the UK had officially slipped into recession in February 2024 as per our earlier report.

In the UK, a contraction in the gross domestic product (GDP) for two successive quarters is defined as recession.

The country’s GDP shrank for two consecutive quarters the previous year— 0.3% and 0.1% during the third and fourth quarters of 2023 respectively.

The country’s GDP grew by a mere 0.1% in 2023. 

In May 2024, we reported that the UK’s GDP grew by 0.6% during the first quarter of 2024, finally escaping recession.

The country’s economy will be a major battlefield for the incumbent Tories and the Labour opposition during the national elections in the UK.

The election results could have significant implications for the UK's economic policy for the next few years.

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