UK April Inflation Rate Dips to 2.8% as Energy Bills Fall, War in Iran Threatens Reversal

The UK’s inflation rate, which tracks price increases over time, registered a fall to 2.8% in the year to April, down from 3.3% in March. This reduction was primarily attributed to decreased gas and electricity bills, a consequence of government energy bill support and pre-conflict wholesale energy price declines, according to the Office for National Statistics (ONS).

However, this downward trend is expected to be short-lived. Analysts project inflation will climb to approximately 4% by the close of the year, with the continuing conflict in the Middle East placing upward pressure on global prices, particularly for fuel. The average price of petrol in April reached 156.8p per litre, marking the highest since November 2022, while diesel prices rose to 190p per litre, a peak not seen since July 2022. Recent data from the RAC indicates petrol prices have continued to increase in May, hitting 158.52p a litre.

Yael Selfin, chief economist at KPMG, stated that the 2.8% rate is “likely as low as it gets for some time,” predicting a sustained upward trend through much of 2026. Chancellor Rachel Reeves indicated forthcoming cost of living support for households, acknowledging the impending higher energy prices stemming from the Middle East conflict. Reeves claimed earlier Budget decisions had “kept inflation down as we deal with global instability,” referencing support including £117 off energy bills and frozen rail fares.

Shadow Chancellor Mel Stride criticised the Labour government’s handling of the economy, stating, “Any fall in inflation is welcome, but prices are still rising far too fast and Labour have left our economy weak and exposed to the impacts of the Iran war.” Lindsay James, investment strategist at Quilter, similarly warned that while the 7% fall in the energy price cap in April was positive, its effect would be “short lived,” urging the UK to prepare for higher inflation.

Grant Fitzner, ONS chief economist, highlighted that the annual cost of “both raw materials and goods leaving factories continued to rise” last month due to increased oil and petrol prices. Producer input prices, representing the cost of materials and fuel for manufacturers, rose by 7.7% in the year to April. Despite this, slower price increases for food, particularly chocolate and meat products, along with lower water, sewage, and vehicle tax bills, contributed to the overall reduction in inflation.

The Bank of England maintains a 2% inflation target, typically adjusting interest rates to influence spending. However, with much of the current inflationary pressure originating from external factors such as elevated oil prices due to the war in Iran, the efficacy of interest rate increases may be diminished. Selfin does not anticipate the Bank raising interest rates next month, suggesting they will “likely wait for clearer evidence of a renewed pickup in domestic inflation.”