𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

UK inflation has fallen back sharply, but experts warned the latest data marks the calm before the storm as the Iran war pushes up prices for households and businesses.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation fell to 2.8% in April, down from 3.3% in March and the lowest level for more than a year.

While the drop was more than expected, economists have said it will only be a brief respite before the Middle East conflict sends inflation spiking back up.

Here the Press Association looks at what is behind the drop inflation, what the outlook is for the months ahead, and what it could mean for households.

– What is inflation?

Inflation is the term used to describe the rising price of goods and services.

The inflation rate refers to how quickly prices are going up.

April’s inflation rate of 2.8% means if an item cost £100 a year ago, it would now cost £102.80.

The drop in CPI last month means that while prices are still rising, but at a slower pace than they were a month earlier.

– Why did inflation fall?

April’s inflation drop was the largest for over 18 months and came as a fall in energy prices offset soaring fuel costs caused by the Iran war.

A big driver of the slowdown came from Ofgem lowering its energy price cap from the start of April by 7%, or £10 a month, for the average household using both electricity and gas – which was pushed down by Government measures to reduce bills.

This included moving 75% of the cost of the UK’s renewables obligation from household bills on to general taxation, and scrapping the energy company obligation scheme.

This helped counter fuel prices, which raced even higher in April after the Iran war sent global oil prices jumping above 100 US dollars a barrel.

The ONS said average petrol prices were 16.6p higher last month to 156.8p a litre – which was the highest since November 2022.

Diesel rocketed by 31.3p to 190p a litre last month, which was also the highest since 2022 in the aftermath of the Ukraine war.

– Will lower inflation last?

Experts have warned that inflation will be sent rising as the Iran war – and the blockade of the crucial Strait of Hormuz shipping route – continues to push up wholesale oil and gas prices, with the energy price cap set to increase significantly from July.

The latest predictions from analysts at Cornwall Insight suggest the price cap could be increased by 13%, or £209, to £1,850 a year from July 1 for a typical dual fuel household.

There are also concerns that higher fuel and energy prices will soon start to feed through to food costs and the price of other goods, as manufacturers, suppliers and retailers pass these on to consumers.

– How high could inflation go?

The Bank of England last month forecast inflation could rise as high as 6.2% in a worst-case scenario if the Iran war is not resolved.

In its most benign predictions, the Bank said inflation would peak at 3.6% by the end of this year.

Economists at ING are forecasting that inflation will reach just under 4% later in 2026.

– What does all this mean for interest rates?

The Bank of England has signalled that it may need to hike interest rates above 3.75% currently to control inflation.

But the weaker April CPI data, combined with official figures on Tuesday showing weaker wage growth and a cooling jobs market, could see the Bank hold off from raising rates.

The International Monetary Fund said on Monday it believed UK rates could be held throughout 2026 and still see inflation come back to the 2% target by the end of 2027.

– What is the Government doing to help?

Chancellor Rachel Reeves is expected to outline a package of cost-of-living support on Thursday.

This will reportedly see her scrap a planned increase in fuel duty from September, alongside possible targeted energy cost measures.