“While inflation fell in April, this is unlikely to mark a sustained easing in price pressures. Household energy bills fell by 7% in April, owing to measures announced by the Chancellor last Autumn. However, Ofgem is set to announce a new energy price cap for Q3 next week that will reflect the recent rise in wholesale gas prices, which we estimate could increase household energy bills by around 10%, pushing headline inflation to close to 4% by September. Scope for further fiscal support appears limited, with the Chancellor’s headroom eroded by the recent rise in government borrowing costs. Nevertheless, the Chancellor may be tempted to offer some broader support which may also serve to curb inflation slightly this year.”
“Goods inflation rose to 2.4% in April, up from 2.1% in March. Businesses have faced a sharp increase in input costs since March. Firms are likely to seek to protect margins by passing on some of these higher costs to consumers. However, weak domestic demand is likely to limit firms’ ability to pass on higher input costs in full, reducing the risk of a broader pickup in inflation.”
“Headline inflation fell to 2.8% in April, driven by favourable base effects as last year’s regulated price increases were not repeated and gas prices declined. We expect inflation to rise again over the coming months as higher energy and food costs feed through. The Bank of England will be reassured by today’s larger than expected easing in underlying price pressures. This effectively closes the door on a potential rate hike at the June meeting, with the BoE likely to wait for clearer evidence of a renewed pickup in domestic inflation.”
