UK inflation falls to 2.3 percent, lowest in three years

Britain’s inflation rate slowed last month to its lowest level in about three years, moving closer to the Bank of England’s 2 percent target.

Consumer prices rose 2.3 percent in April from a year earlier, up from 3.2 percent in March, the Office for National Statistics said on Wednesday. The rate, which fell slightly less than economists expected, was the lowest since July 2021.

It was brought down by a decrease in the cap on household energy bills set by a government regulator. Food inflation also slowed to 2.9 percent, from 4 percent.

The sharp drop in headline inflation, approaching the central bank’s target, signals a new phase in the British authorities’ battle against inflation. Having aggressively raised interest rates after prices soared following pandemic lockdowns and turmoil in energy markets following Russia’s invasion of Ukraine, central bankers are trying to determine how much inflationary pressure remains in the economy and how soon they can cut interest rates.

It is a challenge shared by other major central banks. In the eurozone, authorities have signaled that rate cuts could come as soon as this summer, while in the United States inflation remains relatively high.

In Britain, the central bank expected inflation to fall to 2.1 percent this month, then pick up slightly more and fluctuate around 2.5 percent for much of the rest of the year. But policymakers are examining service prices and wage growth, traditionally persistent components of inflation, which remain uncomfortably strong, with annual growth just below 6 percent.

Officials have indicated that as long as inflation broadly follows its latest projections, rate cuts could begin within a few months. Two members of the rate-setting committee have already voted in favor of the cuts.

On Tuesday, Kristalina Georgieva, managing director of the International Monetary Fund, said the institution was “delivering some good news for the United Kingdom” as it concluded its annual review of the country’s economy.

After an unexpectedly strong exit from a recession earlier this year, the fund raised its forecast for Britain’s economic growth this year to 0.7 percent, from 0.5 percent a month ago. By 2025, it forecast growth of 1.5 percent, with interest rates falling and wages growing faster than inflation.

The measures taken by the British government and the Bank of England, “combined with the favorable development of energy prices, are bearing fruit,” Georgieva said at a news conference in London. “The economy is growing, inflation is falling and a soft landing is in sight,” she said, referring to a situation in which inflation slows without a painful recession.

The fund expects inflation in Britain to make a “durable return” to its target by early 2025 and recommends cutting interest rates from 5.25 percent to 4.75 percent or 4.5 percent this year. and another percentage point next year.

But the long-term prospects for the British economy were bleaker. Weak labor productivity and the number of people out of the labor market due to long-term health problems are weighing on the outlook, the fund said.

The fund also warned that British officials will likely have to make difficult decisions to stabilize public debt, due to demands for greater public spending and investment. advised against further tax cuts “as a general principle”, even as the ruling Conservative Party has stated its ambition to cut taxes further ahead of the general election due to take place within the next eight months.

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