Money Wellness
Illustrated image of a red upward arrow with a man pushing a shopping trolly up it. Today's ONS inflation figures. Inflation falls to 2.3%
category iconcost of living
calendar icon22 May 2024

Inflation falls to 2.3%

As expected, new figures from the Office for National Statistics this morning show inflation is slowing.

In April inflation rose by just 2.3% - a significant fall from last month’s figures of 3.2%. And down from a peak of 11.1% a year and a half ago.

The CPI inflation figures measure how much the price of goods bought by UK households change over a 12-month period.

The drop in April’s figures was largely driven by falling energy prices, with last month’s reduction in the energy price cap saving the average household £1,690.

There were also falls in price rises for alcohol, tobacco, food and non-alcoholic beverages, recreation and culture, and phone bills.

Rises in restaurant prices and hotel costs and the services sector offset falls in other areas.

Rishi Sunak has welcomed this month’s fall in inflation and will now look for the Bank of England to cut interest rates when it next meets to help his party ahead of a general election later this year.

However, much of today’s drop has been driven by falling energy, which is beyond the government’s control.

So the Bank of England will be seeking comfort that price pressures within Britain’s economy - such as the tight labour market where salaries continue to rise - have stabilised before it will consider interest rate cuts.  

The Bank’s governor Andrew Bailey has said that the first rate cute could come in June depending on these figures.

What’s inflation?

Inflation is a measure of how prices of goods and services are changing in the UK.  It can have a big impact on people’s household finances.

Each month the ONS publishes the latest annual inflation rate, which measures the change in price of regularly purchases products – known as the basket of goods and services – compared with the same time the previous year.

Some goods contribute more to the overall inflation rate than others – if some products see a larger increase in prices, while others stay more stable, then inflation would be driven by the changing prices in that spending category.

So, how the headline inflation rate affects your household depends on which products you tend to spend your money on.

Is the inflation crisis finally over?

For nearly two years, households have felt the pinch as prices for everyday goods and services soared. Inflation in the UK reached eye-watering levels, higher than any other major developed economy. But today’s data suggests that the worst might be behind us.

In the 12 months to April, UK inflation stood at 2.3% - still higher than in Germany, France, and Italy, but lower than the 3.5% recorded in the United States.

This suggests that the worst of the inflation crisis may be over. The Bank of England, which has been hiking and holding interest rates to combat rising prices, will undoubtedly welcome this development.

What caused Britain's inflation to skyrocket?

Several factors contributed to Britain's inflation woes:

  • The global surge in energy prices, driven by the war in Ukraine and post-pandemic demand, hit the UK particularly hard.
  • Brexit-related worker shortages exacerbated supply chain issues and drove up costs for businesses, which were then passed on to consumers.
  • A tight labour market, with more job vacancies than unemployed people, put upward pressure on wages and prices.

These unique circumstances meant that, for a time, Britain was an outlier among the Group of Seven (G7) nations, with inflation peaking higher than in any other big rich economy.

What does this mean for household budgets?

While a 2.3% inflation rate is still above the Bank of England's 2% target, it's a significant improvement from the double-digit levels seen last year. For the average household, this means that the cost of living should start to stabilise, providing some relief for strained household budgets.

However, it's important to remember that prices are still higher than they were a year ago, and many families will continue to feel the impact of the inflation crisis for some time to come.

Avatar of Caroline Chell

Caroline Chell

Caroline has worked in financial communications for more than 10 years, writing content on subjects such as pensions, mortgages, loans and credit cards, as well as stockbroking and investment advice.

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