BRITAIN’S annual inflation rate fell sharply to a 13-month low of 8.7% last month but prices remain elevated as the country faces a cost-of-living crisis, official data showed today.

The rate of price increases slowed from 10.1% in March, bringing inflation under 10% for the first time since last August, the Office for National Statistics (ONS) said in a statement.

At 8.7%, it was the lowest level since March last year, when the rate stood at 7%.

“However, prices in general remain substantially higher than they were this time last year, with annual food price inflation near historic highs,” noted ONS chief economist Grant Fitzner.

Despite the sharp drop, analysts say the Bank of England (BOE) is likely to raise interest rates again at its next meeting as April’s figure was above the central bank’s prediction for inflation of 8.4% last month.

Britain’s annual inflation rate is also the highest among countries in the Group of Seven rich economies featuring also Canada, France, Germany, Italy, Japan and the United States.

The BOE’s target rate of 2% remains very far off, while the UK government has said it sees inflation dropping to about 5% by year end.

Last month, “the rate of inflation fell notably as the large energy price rises seen last year were not repeated… but was offset partially by increases in the cost of second-hand cars and cigarettes”, Fitzner said.

Economy boost

The data come one day after the International Monetary Fund (IMF) delivered a major U-turn on its forecast for the UK economy, saying it expected growth this year just one month after predicting a contraction.

Britain’s economy is expected to expand 0.4% this year, the IMF said in its latest outlook document, which cited weaker energy prices.

The IMF ripped up its previous forecast last month for a 0.3% contraction.

“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,” finance minister Jeremy Hunt said following today’s data.

UK food price inflation stood at 19% last month, around the highest level in more than 45 years.

“With inflation proving stickier than” BOE expectations, “it now seems all-but certain that the bank will raise interest rates from 4.5% to 4.75% next month”, forecast Capital Economics chief UK economist Paul Dales.

The BOE earlier this month lifted its key interest rate to the highest level since the 2008 financial crisis, noting inflation remained stubbornly high.

It hiked the rate by a quarter-point to 4.5% – its 12th increase in a row, fuelling a cost-of-living crisis across Britain.

Prime Minister Rishi Sunak’s Conservative government recently suffered a drubbing in local elections, as voters gave their verdict over rampant living costs despite state efforts to partly subsidise energy bills.

Over the past year, the nation has been plagued by strikes, staged mainly by railway and postal staff but also by teachers and health workers, as high inflation erodes the value of wages.

Policymakers around the world are battling elevated inflation caused largely by runaway energy bills in the wake of last year’s invasion of Ukraine by major oil and gas producer Russia. – AFP, May 24, 2023.