Inflation falls to lowest level in three years down from 3.2% to 2.3% (2024)

Rishi Sunak hailed a 'major milestone' today after inflation tumbled to the lowest level in nearly three years.

The headline CPI rate slid from 3.2 per cent in March to 2.3 per cent last month - near the Bank of England's 2 per cent target.

The PM said the figures showed that his plan is working and 'brighter days are ahead'.

However, the drop, driven largely by easing energy prices, was less than the 2.1 per cent analysts had pencilled in - sparking concerns that the Bank of England might delay interest rate cuts.

Core inflation, another key factor for Threadneedle Street as it mulls whether to ease the pain on mortgage-payers in June, also remained stubbornly high.

Meanwhile, separate official figures had public sector borrowing above estimates, raising questions about whether Chancellor Jeremy Hunt will have room to cut taxes before the election.

Ofgem slashing the cap on gas and electricity prices helped bring down the overall inflation figure in April.

Grant Fitzner, the ONS's chief economist, said: 'There was another large fall in annual inflation led by lower electricity and gas prices, due to the reduction in theOfgem energy price cap.

'Tobacco prices also helped pull down the rate, with no duty changes announced in the budget.

'Meanwhile, food price inflation saw further falls over the year. These falls were partially offset by a small uptick in petrolprices.'

Food and drink price rises slowed for the 13th month in a row to 2.9 per cent in April, from 4 per cent in March, and the lowest level since November 2021.

However, services inflation, a critical indicator for Bank of England policymakers, dipped slightly from 6 per cent in March to 5.9 per cent in April, coming in ahead of the 5.4 per cent rate that some economists had been predicting.

CPI is at the lowest level since July 2021 when it was 2 per cent.

MrSunak said inflation was 'back to normal' and 'brighter days are ahead' - but Labour insisted it was not the time for ministers to be 'taking a victory lap'.

Suren Thiru, Economics Director at ICAEW, said: 'This underwhelming drop in inflation suggests that the UK is rather stumbling back towards the Bank of England's 2 per cent target, as lower energy bills had a smaller than expected impact on April's headline rate.

'Concern over hotter than expected headline inflation is exacerbated by disappointing declines in core and services inflation, which suggest that the problem of underlying price pressures embedded in the wider economy have yet to be solved.

'The headline rate is set to drop markedly over the summer, once the expected decline in Ofgem's energy price cap cuts people's energy bills from July.

'Lingering concerns over underlying inflationary pressures mean a June rate cut is unlikely. However, these figures may convince more rate setters to vote to ease policy, providing a signal that a summer rate cut is still possible.'

MoneySavingExpert's Martin Lewis said rate cuts were most likely in August because the Bank of England's target has still not quite been hit.

The data released this morning means prices are still rising across the country, but at a much slower rate than in recent years when households and businesses were being squeezed during the peak of the cost-of-living crisis following the pandemic.

This was driven by more volatile aspects of the sector, such as hotels and live music.

Mr Sunak said:'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.

'Brighter days are ahead, but only if we stick to the plan to improve economic security and opportunity for everyone.'

The public sector finances figures showed April borrowing above expectations, and March borrowing revised up. Borrowing is running above the forecasts made by the OBR watchdog, suggesting Mr Hunt will have less room than he hoped for tax cuts.

Mr Fitzner said: 'At £20.5billion in April, borrowing was up £1.5billion on April last year.

'While central government spending and income overall both rose on this time last year, a large drop in National Insurance contributions meant receipts did not grow as fast as spending.

'Here, falls in expenditure on energy support were offset by increases in benefit spending from the annual uprating.'

A Treasury spokesman added: 'We rightly protected millions of jobs during Covid and paid half of people's energy bills after Putin's invasion of Ukraine sent bills skyrocketing - but it wouldn't be fair to leave future generations to pick up the tab.

'That's why we must stick to the plan to get debt falling. The economy is turning a corner, with strong growth this quarter and inflation close to target, allowing us to cut taxes for the average worker by £900 a year.'

But shadow chancellorRachel Reeves said: 'Inflation has fallen, but now is not the time for Conservative ministers to be popping champagne corks and taking a victory lap.

'After 14 years of Conservative chaos families are worse off. Prices in the shops have soared, mortgage bills have risen and taxes are at a 70-year high.

'Rishi Sunak is now putting family finances at risk again with his £46 billion unfunded policy to abolish national insurance that will mean higher borrowing, higher taxes or the end of the state pension as we know it.

'It's time for change. Labour's first steps will deliver economic stability so we can grow our economy and keep taxes, inflation and mortgages as low as possible.'

Shadow Treasury ministerDarren Jones acknowledged inflation had 'come down a bit' when speaking to Sky News today, but said this was 'largely driven by a drop in the energy price cap'.

He added: 'Core inflation is still around 3.6 to 3.9 per cent, which is hotter than the markets were expecting it to be. This is not out of the woods yet. It is in the right direction but there is still much more to be done.'

Mr Jones pointed to Labour's 'securonomics' agenda, which includes measures to build 'homegrown, secure, renewable energy'.

The shadow minister said: 'The one reason that the headline rate of inflation has come down closer to 2 per cent today even though the cost of other things are remaining a bit too high is because of the energy bills.

'The problem there is if something happens in the world and gas prices rocket again, we are going to be back into that inflationary environment with very high bills.'

And theLiberal Democrats Treasury spokesperson Sarah Olney said: 'Nobody will be feeling any better off after today, with families still facing a £9 billion mortgage bombshell this year alone.

'Conservative ministers cannot celebrate today after presiding over the worst cost-of-living crisis in a generation.

'The aftershocks of this crisis will be felt for years to come, and the blame lies squarely with this incompetent Government.

'The Conservative party should never again be trusted to manage the British economy.'

Alpesh Paleja, the Confederation of British Industry's lead economist, said: 'A big fall in inflation was always on the cards for April, given Ofgem's 12 per cent cut to the energy price cap.

'Households and businesses will welcome a more benign inflationary environment, but it's worth noting that many will still be struggling with a high level of prices, particularly in food and energy bills.

'Today's data further sets the stage for interest rate cuts in the coming months. While the Monetary Policy Committee is likely to reduce interest rates over the summer, they are still holding out for more definitive falls in measures of domestic price pressures.

'It's encouraging that pay growth is now a touch below the Bank of England's forecast, but there's still a long way for it to get closer to levels consistent with inflation at target.

'The Bank will also be mindful of growing upside risks to inflation in the near-term: with the growth outlook improving at home, and tensions in the Middle East threatening to stoke commodity prices and supply pressures globally.'

And Mr Lewis tweeted: 'This is at the high end of expectations, the Bank of England target has not been hit. It means an interest rate cut in June is less likely, August more likely.'

And Trades Union Congress (TUC) general secretary Paul Nowak said: 'The cost-of-living crisis is not over - no matter how much ministers pretend it is. Prices are still going up. Food and energy bills are much higher than a couple of years ago. And many are being hit by soaring mortgage repayments.'

While Mr Nowak welcomed the lower rate of inflation he added that 'millions up and down the country are still having to cut back on everyday essentials'.

He continued: 'That's because household budgets have been decimated by the highest price rises in the G7 and wages have flatlined over the last 14 years.

'Pay packets are still worth less today than in 2008, with working people on course to end this Parliament poorer than at the start.

'Make no mistake - the Tories have delivered the worst period for living standards in generations.'

Also today, it was revealed that borrowing for April had overshot forecasts, hitting £20.5 billion, in the fourth-highest April since records began in 1993.

The ONS estimated that public sector net borrowing was £1.5billion more than in 2023.

Britain's official forecaster had estimated borrowing would come in at £19.3billion for April.

Public sector net debt excluding public sector banks (debt) at the end of April 2024 was provisionally estimated at 97.9 per cent of gross domestic product (GDP), 2.5 percentage points more than at the end of April 2023.

It comes after borrowing of £11.9billion in March, which was £4.7billion less than a year ago, but higher than economists expected.

A fall in National Insurance contributions helped push up borrowing, said Mr Fitzner.

He said: 'At £20.5billion in April, borrowing was up £1.5 billion on April last year.

'While central government spending and income overall both rose on this time last year, a large drop in National Insurance contributions meant receipts did not grow as fast as spending.

'Here, falls in expenditure on energy support were offset by increases in benefit spending from the annual uprating.

'Relative to the size of the economy, debt remains at levels last seen in the early 1960s.'

The Treasury has defended its spending record following the borrowing data.

A spokesperson for the Treasury said: 'We rightly protected millions of jobs during Covid and paid half of people's energy bills after Putin's invasion of Ukraine sent bills skyrocketing - but it wouldn't be fair to leave future generations to pick up the tab.

'That's why we must stick to the plan to get debt falling. The economy is turning a corner, with strong growth this quarter and inflation close to target, allowing us to cut taxes for the average worker by £900 a year.'