UK inflation fell to 2.8% in April from 3.3% in March, the Office for National Statistics reported Friday, as government energy support and lower wholesale prices eased household bills. But the relief is temporary: KPMG Chief Economist Yael Selfin said inflation will likely climb toward 4% by December, driven by oil price shocks from the Iran war. "This is likely as low as it gets for some time," she warned.
The drop surprised markets. Economists had forecast a smaller decline, but a 7% cut in the energy price cap and falling food costs delivered the sharpest monthly slowdown this year. Petrol prices told a different story.
The average pump price hit 156.8p per litre in April, ONS data showed, while diesel surged more than 30p to 190p. By Tuesday, petrol reached 158.52p, a fresh high according to the RAC. Grant Fitzner, ONS chief economist, said lower water bills and vehicle tax also helped.
Food inflation eased to 3% from 3.7%, with chocolate and meat prices slowing. But producer input prices jumped 7.7% annually, signaling pipeline pressures. "Both raw materials and goods leaving factories continued to rise," Fitzner noted, pointing to oil and petrol costs. Chancellor Rachel Reeves moved quickly.
On Wednesday she pledged further cost-of-living support, citing last year's Budget measures. "We have already taken £117 off energy bills, frozen rail fares, and lifted the two-child limit," she said. "Over today and tomorrow I'll set out the next phase." Shadow Chancellor Mel Stride blamed Labour for leaving the economy "weak and exposed" to the Iran conflict. The policy says one thing. The reality says another.
Ian Cheetham runs Set Produce, a fresh fruit and vegetable supplier. With fuel and energy climbing, he said price hikes are inevitable. "We can absorb some costs going up but with fuel prices as they are and transportation being a big part of the business it can be hard to absorb it all." His warning echoes across food supply chains. The Food and Drink Federation predicts food inflation could hit 10% by year-end.
Lindsay James, investment strategist at Quilter, called the energy cap relief "short lived." The fuel price surge, she said, underscores "potential threats that still lurk for consumers and businesses." Her caution reflects a broader anxiety: the Iran war's disruption to global oil markets is only beginning to feed through. Brent crude has hovered above $95 a barrel for weeks, and analysts see $100 as plausible if tensions escalate. The Bank of England faces a dilemma.
Its 2% inflation target is already breached, and raising interest rates—the traditional tool—may do little against externally driven energy costs. Selfin said the Monetary Policy Committee will "likely wait for clearer evidence of a renewed pickup in domestic inflation" before acting. That patience could be tested if headline inflation accelerates faster than expected.
Historical parallels are uneasy. During the 2022 energy crisis, UK inflation peaked at 11.1%, squeezing households and triggering a cost-of-living emergency. The current shock is smaller but compounded by years of accumulated price rises.
Wages have lagged, and savings buffers are thinner for low-income families. The Resolution Foundation estimates that the poorest fifth of households spend three times as much of their income on energy as the richest fifth. Both sides claim victory.
Here are the numbers. The government points to £117 in direct energy bill relief and rail fare freezes. Critics note that fuel duty remains high, and the 5p cut introduced in 2022 expires next March.
Without extension, pump prices could add another 6p per litre overnight. For a typical family car, that means an extra £3 per fill-up—small in isolation, but cumulative with rising food and housing costs. What this actually means for your family.
A household spending £200 monthly on groceries and £150 on fuel could see those costs rise by £35-£40 by December, based on current inflation projections. That is before any increase in mortgage payments if the Bank eventually hikes rates. For a family earning £35,000 a year, that is a 1.2% hit to disposable income—on top of existing pressures.
Why It Matters:
The inflation trajectory shapes every household budget, but also the political landscape ahead of the next general election. If inflation hits 4% while wage growth stalls, real incomes will fall for millions—echoing the 2022-23 squeeze that eroded living standards. Reeves' upcoming support package will be scrutinized for whether it cushions the vulnerable or merely offsets headline numbers.
The Bank of England's next move, or lack of one, will signal how much pain it is willing to tolerate from external shocks. Key takeaways: - UK inflation fell to 2.8% in April, but KPMG and Quilter expect it to rise toward 4% by year-end due to Iran war-driven fuel costs. - Petrol hit a record 158.52p per litre, and diesel surged to 190p, pushing up producer input prices by 7.7% annually. - Chancellor Reeves promised new cost-of-living support, while the Food and Drink Federation warned food inflation could reach 10%. - The Bank of England is expected to hold rates steady for now, waiting for clearer domestic inflation signals. Reeves' announcement in the coming days will set the tone.
Markets will watch for direct transfers, tax adjustments, or energy price caps. The Bank's June meeting will be. If inflation expectations become unanchored, rate hikes could return to the table.
For now, households are caught between a welcome dip and a looming spike. The next ONS inflation print, due in late June, will reveal whether April was a false dawn.
Key Takeaways
— - UK inflation fell to 2.8% in April, but KPMG and Quilter expect it to rise toward 4% by year-end due to Iran war-driven fuel costs.
— - Petrol hit a record 158.52p per litre, and diesel surged to 190p, pushing up producer input prices by 7.7% annually.
— - Chancellor Reeves promised new cost-of-living support, while the Food and Drink Federation warned food inflation could reach 10%.
— - The Bank of England is expected to hold rates steady for now, waiting for clearer domestic inflation signals.
Source: BBC News
