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UK inflation falls to 8.7%, but food prices remain high

UK inflation falls to 8.7%, but food prices remain high


Inflation in the UK fell to 8.7% in April, but the decline was much smaller than the Bank of England expected.

The BoE expected consumer price inflation to fall to 8.4% last month from 10.1% in March as energy price increases in 2022 are excluded from year-over-year comparisons.

Government borrowing costs are numerically higher as traders raise their expectations for interest rates.

The yield on the 2-Year Gold Foil rose 0.26 percentage points to 4.38%, the last rate seen since the Liz Trusss mini-budget. The 10-year sow yield rose 0.1 percentage point to 4.29%.

The figures will add to the difficulties faced by BoE Governor Andrew Bailey, who conceded on Tuesday that the central bank’s economic model was inaccurate and that there are very big lessons to be learned about managing high price increases.

While the headline inflation rate is likely to decline further as gas and electricity prices fall this year, the jump in the core inflation rate from 6.2% to 6.8% over the same period suggests that underlying inflationary pressures are greater than expected.

KPMG UK’s chief economist, YaelSelfin, said inflationary pressures remained “sticky”.

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Paul Dales, chief UK economist at Capital Economics, said he welcomed the headline rate cut but, far more importantly, worried about a big rebound in core inflation.

This was contrary to expectations that underlying price pressures would decline slightly, and the recent elasticity of economic activity appears to be fueling domestic inflationary pressures, he said.

The BoE has said it will raise interest rates again if there are signs of sustained inflation.

Samuel Tombs, chief UK economist at Pantheon Macro Economics, said the figures far exceeded expectations and could prompt the central bank’s Monetary Policy Committee to act again. One drop was too little [in inflation] He told MPC to stop hiking in June.

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ONS said stabilization in energy prices this year, compared to the big jump last year, explained the decline in key rates, but was offset by significant increases in used car and cigarette prices.

Food price inflation was close to a 45-year high at 19.1% in April compared to 19.2% in March.

ONS chief economist Grant Fitzner said:

Kitty Ussher, chief economist at the Institute of Directors, said while the numbers were troubling, it was still possible that a drop in inflation would change sentiment among companies that set prices and wages.

Policymakers will hope that now that headline rates are back in the single digits, future inflation expectations are also starting to fall and can be met on their own, she said.

Inflation rates in the UK will now compare unfavorably with inflation rates in the US, France, Germany and other large economies, which are above the EU average.

In the month of April alone, UK prices rose 1.2 per cent when gas and electricity rates were frozen. The telecommunications component of inflation increased by 8% as cell phone companies raised rates, often tied to inflation.

Grocery prices increased by 1.4%, rent and package vacations increased in the same month, and postal costs increased by 6%.




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