Inflation falls faster than expected to 2.4% to boost wages

Inflation falls faster than expected to 2.4% to boost wages and ease pressure for an interest rate hike

  • CPI inflation was 2.4 per cent in April, Office for National Statistics data shows 
  • The rate was down in defiance of forecasts it would hold steady at 2.5 per cent 
  • Falling inflation further eases pressure on wages and may delay another rate rise

Inflation fell again in April to boost the value of wages and ease pressure for a new interest rate hike, surprise figures show today.

Consumer Price Inflation (CPI) was 2.4 per cent in April, down from 2.5 per cent in March. Analysts had expected the rate to hold steady.

Wages finally started pulling ahead of wages last month following a squeeze that lasted more than a year and a widening of the gap will be a boost for workers.

Consumer Price Inflation (CPI) (blue line) was 2.4 per cent in April, down from 2.5 per cent in March. Analysts had expected the rate to hold steady. It may widen the advantage of rising wages (red line) when new figures are released next week 

Inflation falling toward the Bank of England’s 2 per cent target will also ease calls for an increase in the base rate, which remains at historically low levels.

But sterling tanked following the news, falling 0.6 per cent against the US dollar to 1.33. Against the euro, the pound was down 0.1 per cent at 1.14.

TUC General Secretary Frances O’Grady said: ‘Today’s figure confirms the Bank of England was right not to raise interest rates.

‘With the worst pay squeeze for two centuries, what people really need is higher wages not higher interest rates.’ 

ONS head of inflation Mike Hardie said: ‘Inflation continued to slow in April, with air fares making the biggest downward contribution, due to the timing of Easter. This was partially offset by the rise in petrol prices.

‘Soft drink prices saw their biggest ever rise for this time of year, due to the introduction of the sugar tax.

‘However, many retailers still haven’t passed the impact of the tax onto shoppers. 

‘Annual price growth for goods leaving factories was unchanged in April. However, the cost of raw materials increased, mainly driven by strong rises in crude oil prices.

‘House prices continued to fall in London, seeing their second annual decline since the financial crisis. However, Scotland continued to see strong annual growth.’

Bank of England Governor Mark Carney yesterday defended the decision to hold interest rates steady this month despite having signalled a hike in May

Bank of England Governor Mark Carney yesterday defended the decision to hold interest rates steady this month despite having signalled a hike in May. 

He said: ‘We give guidance. The guidance is conditional on the economic outlook.

‘If the outlook changes, the actual policy stance will adjust, and of course the policy stance is determined by the sum of the individual decisions,’ he told MPs during a Treasury Select Committee hearing on Tuesday. 

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