Detailed Outlook on UK CPI Data Release – 24 May 2023
The latest data release from the Office for National Statistics (ONS) showed several significant shifts in the UK’s Consumer Prices Index (CPI) figures. This article delves into the key highlights from the release and their implications for the UK economy.
Key Highlights
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 7.8% in the 12 months to April 2023, down from 8.9% in March. This decline reflects a slightly easing inflation pressure. On a monthly basis, CPIH rose by 1.2% in April 2023, compared with a rise of 2.1% in April 2022.
The standalone CPI rose by 8.7% in the 12 months to April 2023, a decrease from 10.1% in March. On a monthly basis, CPI rose by 1.2% in April 2023, compared with a rise of 2.5% in April 2022.
Interestingly, electricity and gas prices, which have been a significant contributor to inflation, helped reduce the annual inflation rate in April, despite still contributing 1.01 percentage points to it.
Meanwhile, food and non-alcoholic beverage prices continued to rise in April, contributing to high annual inflation. The annual inflation rate for these items eased slightly from 19.2% in March 2023 to 19.1% in April 2023.
The Core CPI, excluding energy, food, alcohol, and tobacco, rose by 6.8% in the 12 months to April 2023, up from 6.2% in March. This is the highest rate since March 1992 and indicates underlying inflationary pressures in the economy.
Economic Outlook
In response to the high inflation rates, the Bank of England (BOE) has undertaken measures to combat inflation, including raising interest rates to 4.5% from 0.1% since December 2021. The BOE has signaled that further tightening may be required if persistent inflationary pressures continue.
The decrease in the annual CPI rate from 10.1% in March to 8.7% in April 2023 suggests that these measures are beginning to have an impact. However, inflation remains well above the BOE’s 2% target, indicating that it may be some time before inflation is back to target levels. The BOE expects inflation to meet the 2% target by late 2024.
The high annual inflation rate for food and non-alcoholic beverages and the increase in the Core CPI highlight persistent inflationary pressures. These factors, combined with the potential for higher borrowing costs due to increased interest rates, suggest that household budgets could continue to be under pressure in the short term.
The BOE’s policy of raising interest rates to combat inflation is a delicate balancing act. While it is expected to slow down price increases and help bring inflation closer to the target, it also makes borrowing more expensive, which could affect consumer spending and slow economic growth.
In conclusion, as the UK grapples with high inflation and its attendant challenges, households, businesses, and policymakers must tread carefully. It is crucial to consider the potential impacts of continued high inflation and rising interest rates on the economy. The coming months will provide a clearer picture of how successful the BOE’s policies are in bringing inflation back to target levels.
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