UK inflation rate eases to 2.8% in April, but slowdown is expected to be short-lived

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U.K. inflation eased to 2.8% in April, preliminary data from the Office for National Statistics (ONS) showed on Wednesday.

Economists polled by Reuters had expected the inflation rate to drop back to 3%, cooling from 3.3% in March, largely due to an energy price cap introduced by the U.K.'s energy regulator Ofgem on April 1.

Consumer prices are expected to continue to increase, however, as higher energy costs due to the Iran war continue to materialize.

"There was a notable fall in annual inflation led by lower electricity and gas prices. This was due to the Government's energy bill support package reducing variable and fixed tariffs, along with lower global wholesale energy prices before the conflict in the Middle East, which fed through to the reduction in the Ofgem cар," Grant Fitzner, chief economist at the ONS, commented on X on Wednesday.

Smaller rises in water and sewage bills and road tax than were seen last year also helped pull the rate down, Fitzner said. Food prices, particularly for chocolate and meat products, and the price of package holidays drove inflation down further.

"These were only partially offset by a further increase in petrol and diesel prices, and an uptick in the cost of clothing and footwear," he said.

The government has come under pressure for not doing more to mitigate higher energy costs in the U.K., a net energy importer, and for not fully exploiting remaining oil and gas reserves in the North Sea.

Chancellor Rachel Reeves is expected to announce sweeping reforms to give parliament authority to approve critical energy schemes, the U.K.'s Treasury said early Wednesday, Reuters reported.

The Bank of England is keeping a close eye on price rises, as well as so-called "second round" effects, such as workers demanding higher wages and businesses raising costs for consumers, and has said it is ready to use monetary policy to combat inflation, if necessary.

The central bank is wary of the dampening effect that increasing interest rates could have on an already-fragile economy, however, amid lackluster growth and signs of weakness in the labor market; U.K. employment data on Tuesday showed the unemployment rate had risen to 5% in the three months to March, up from 4.9% in February.

As the BOE seeks to balance competing needs and risks facing the U.K., economists expect the central bank's nine-member Monetary Policy Committee (MPC) could decide to hold rates at the next policy meeting on June 18 as it opts against acting too soon, either way.

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