UK inflation falls to 2.8% in April

CPI annual inflation – the Government's target measure – was 2.8 per cent in April, down from 3.1 per cent in March, according to the Office for National Statistics.

The main downward pressure came from average gas and electricity bills which fell this year but rose a year ago. There was also a large downward effect from financial services. This year, foreign exchange commission rates fell following the abolition of a charge from one major bank; last year, by contrast, average commission rates rose. In addition, fees for overdrafts fell this year but rose a year ago.

There were also small downward effects from:

Furniture and household goods, mainly due to steeper cuts in the price of furniture this year, particularly bedroom furniture. This follows a record month-on-month increase in furniture prices in March 2007; and

Air travel, particularly long haul routes, with fares rising by less than a year ago when the price collection period coincided with the Easter holiday period. A large partially offsetting upward effect came from bus travel where prices rose this year but fell a year ago following the introduction of free off-peak local bus travel in England for disabled people and those aged over 60.

The largest upward effect on the inflation rate came from men’s and women’s clothing, with prices rising this year following the introduction of higher priced replacement stock. Last year, by contrast, there was a mixture of special offers and higher prices.

There were also large upward effects from restaurants and cafes, with prices rising by more than a year ago, particularly for on-sales of alcohol; and from food and non-alcoholic beverages. The latter was mainly due to prices of vegetables rising this year, in large part reflecting limited supplies of some produce, but falling a year ago.

RPI inflation fell to 4.5 per cent in April, down from 4.8 per cent in March and was influenced by similar factors to those that affected the CPI. RPIX inflation – the all items RPI excluding mortgage interest payments – was 3.6 per cent in April, down from 3.9 per cent in March.

As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate is above average for the European Union as a whole. The provisional inflation rate for the EU 27 in March was 2.2 per cent, compared with the UK rate of 3.1 per cent for the corresponding period.

Barry Naisbitt, Abbey's Chief Economist, comments: "As widely expected, the annual rate of inflation fell today.

“After hitting 3.1 per cent in March, CPI inflation dropped to 2.8 per cent in April. While this remains above the two per cent target, the Governor of the Bank of England will not have to write to the Chancellor this month.

"Falls in gas and electricity bills account for two thirds of the dip in annual inflation between March and April. The Bank of England's February Inflation Report showed that further falls in annual inflation are expected as the year progresses, reflecting to a large degree an unwinding of the effects of the rapid rise in oil prices last year."