Cost of living
Inflation falls as Bailey admits Bank made mistakes
Inflation dropped to 8.7% in the year to April from 10.1% in March, its lowest rate since last summer, according to the Office for National Statistics.
The easing of the cost of living is the second piece of positive news for the UK Government following the International Monetary Fund’s forecast that the economy will avoid recession.
However, core CPI inflation (excluding energy, food, alcohol and tobacco) rose by 6.8% in year to April 2023, up from 6.2% in March – the highest rate since March 1992.
Chancellor Jeremy Hunt said: “The IMF said yesterday we’ve acted decisively to tackle inflation but although it is positive that it is now in single digits, food prices are still rising too fast.
“So as well as helping families with around £3,000 of cost of living support this year and last, we must stick resolutely to the plan to get inflation down.”
Labour’s Shadow Chancellor Rachel Reeves said: “As bills keep surging, families will be worried food prices and the cost of other essentials are still increasing.
“They will be asking why this Tory government still refuses to properly tackle this cost of living crisis, and why they won’t bring in a proper windfall tax on the enormous profits of oil and gas giants.”
Alpesh Paleja, CBI lead economist, said: “Inflation was always likely to fall in April, as the comparison was against a big rise in Ofgem’s energy price cap this time last year.
“Inflation should continue to fall in the months ahead, thanks to base effects unwinding further and a more benign outlook for global energy prices. But it’ll take a while for people to feel this in their pockets, particularly with food price inflation and generalised inflationary pressures still strong.
Easing price pressures means that the Bank of England is probably close to the peak in its rate tightening cycle.
“But the stickiness in domestic price pressures, such as wage growth, is something that it is keeping a close eye on. Should this persist, especially against the backdrop of resilience in economic growth, it might prove too early to call time on rate rises just yet.”
The inflation data was released a day after Bank of England governor Andrew Bailey admitted that the Bank has “very big lessons” to learn from its battle to bring down inflation.
It was the governor’s most explicit acknowledgement that it has struggled to tackle soaring prices.
Mr Bailey and other Bank officials were challenged by MPs on the Commons Treasury select committee for their failure to forecast Britain’s inflationary spiral.
He conceded: “I think there are very big lessons about how we operate monetary policy in the face of very big shocks” and that they had “a lot to learn” about navigating such an environment.
“The shocks we’ve faced have been unprecedented. We have to make policy in real-time, we don’t make policy with the benefit of hindsight.”
Huw Pill, the Bank’s chief economist, added: “We recognise that our forecasts of inflation have been too low and we’re trying to understand why we have made those errors.”
The Conservative MP John Baron accused the Bank of a “woeful neglect of duty” in not bringing inflation close to its 2%target, which he said was causing “real pain” to households and businesses.
Inflation has until April remained in double-digit territory despite 12 successive rate rises to bring prices under control. Last week the Bank lifted its base rate to 4.5%.
The Bank expects inflation to fall back to its target of 2% by early 2025.
Mr Bailey added: “I can’t tell you whether we’re near to the peak, I can’t tell you whether we’re at the peak, I think we are nearer to the peak than we were.”
He said food price inflation had been driven partly by “things that couldn’t have been expected”. He said these were “mainly weather events” that had affected vegetables and sugar.
However, he accepted that the Bank could have predicted how some food manufacturers had responded to worries that Russia’s invasion of Ukraine might disrupt supplies of raw materials such as fertiliser.