industry

UK inflation tumbled to lowest level in four years in April, says ONS


Inflation in Britain tumbled to 0.8% in April, its lowest level in four years, as the coronavirus lockdown sent petrol prices crashing and cut the cost of items such as clothing and secondhand cars.

The Office for National Statistics (ONS) said a cap on gas and electricity prices by the UK regulator also depressed average prices, which in March were rising at the annual rate of 1.5%.

Brent oil prices fell to a near 21-year low of $16 a barrel on 22 April, pushing down the price of petrol to below £1 a litre in many parts of the country.

The ONS said fuel price falls were partially offset by the rising price of recreational goods, such as toys, games and hobbies, and takeaway food, for which there had been high demand during the lockdown.

Consumer groups have also reported that the prices of many household goods increased during the lockdown but the ONS said on a month-on-month basis, shop prices stayed level at 0% between March and April.

Most stores were closed in April, leaving consumers to purchase the bulk of their non-food items online.

Analysts expect prices to fall further over the coming month as shops launch sales to to offload unwanted and old stock as they reopen during the summer.

Pressure on the Bank of England to boost the economy and push inflation back to its 2% target is expected to intensify after the price fall.


Central bank officials are due to meet next month when City analysts expect them to add at least £100bn to their stimulus programme, known as quantitative easing, where the bank pumps money into the system by acquiring buys bonds off financial institutions.

The Bank of England’s governor, Andrew Bailey, will also be prompted to write to the chancellor, Rishi Sunak, to explain why inflation has fallen below the 1% band around the 2% target rate and what the central bank proposes to do about it.

Inflation graph

Howard Archer, the chief economic adviser to the EY Item Club, an economic forecasting group, said the downturn in economic activity after restrictive lockdown measures was exerting downward pressure on prices that would continue for the rest of the summer.

He said: “Many people have already lost their jobs, despite the supportive government measures, while others may be worried that they may still end up losing their job once the furlough scheme ends.

“Additionally, many incomes have been negatively affected. This is likely to keep consumers price conscious for some time, even when the economy starts to recover.”

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Victoria Clarke, a UK economist at the investment bank Investec, said inflation posed a dilemma for the Bank of England, which has predicted a quick recovery from the pandemic once the lockdown is eased.

“How much further inflation falls from here will depend, like all economic forecasts at this time, on the evolution of the coronavirus, success in finding a vaccine and/or treatment and with it the scope for a more material easing in lockdown restrictions,” she said.

“The worry for the Bank of England, of course, is that while governor Bailey has pointed to a rapid recovery in economic growth next year, a more prolonged slowdown follows, paving the way for a period of weaker demand and with it a more persistent period of low inflation.

“For now, the BoE maintains a very close watching brief but is continuing discussions on what further policy easing could be deployed, including the idea of negative interest rates, should a bigger and persistent undershoot of the 2% inflation goal threaten.”



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.