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UK Inflation Slows

In the United Kingdom, the inflation rate in April was the lowest in almost three years.

UK Inflation Slows

The mentioned result has become an objective economic reality for London as a result of the impact of factors such as a drop in the cost of electricity and a significant reduction in the price of gas.

The Office for National Statistics (ONS) has released information according to which in April prices in the United Kingdom showed an increase of 2.3% compared to the indicator for the same period last year. It is worth noting that in March, the mentioned figure increased by 3.2% year-on-year.

Currently, inflation in the United Kingdom is on a downward trajectory. At the same time, this indicator has still not reached the Bank of England’s target of 2%. It is worth noting that the financial regulator of the United Kingdom has stated the likelihood that a decision will be made upcoming summer on cutting interest rates. Currently, the cost of borrowing in the UK is 5.25%. The corresponding indicator is at the highest level in the last 16 years.

It is also worth noting that a decrease in the inflation rate in the United Kingdom does not mean that the cost of goods and services is no longer rising. The slowdown in the inflationary process is evidence that prices are increasing but at a slower pace.

The positive inflation data in the United Kingdom for April is largely due to a drop in the cost of gas and electricity. This tendency is the result of a lower price cap being kicked in the UK last month. This indicator is the maximum cost that can be charged for each unit of energy.

In April, energy prices in the United Kingdom showed a decrease of 27% compared to the result for the same period in 2023. The cost of gas during this period fell by 38% year-on-year.

Also, the downward trajectory of inflation in the United Kingdom in April was facilitated by the fall in the price of tobacco and food. At the same time, in April, an increase in prices for mobile communication services and a rise in rent were recorded.

Sarah Coles, head of the personal finance unit at Hargreaves Lansdown, says that in the United Kingdom, energy costs still continue to be relatively high for the average household. At the same time, the expert noted that the corresponding indicator still shows a significant increase compared to the level that was observed before 2022. Sarah Coles also underlined that some foods, including poultry meat, fish, butter, and milk, fell in price in April regarding the cost of these products, which was recorded a year earlier. The expert said that these changes are due to falling prices for fertilizers and tougher negotiations with supermarkets over their own-brand items. Sarah Coles noted that in April, the cost of olive oil, cocoa, and crisps rose amid high demand and disappointing harvests.

The Prime Minister of the United Kingdom, Rishi Sunak, said that last month’s inflation data showed a major moment for the economy. According to him, the inflation process has returned to normal. Rishi Sunak is convinced that the economic system of the United Kingdom has a more positive period ahead. At the same time, the Prime Minister noted that the materialization of the corresponding scenario will become a reality if London continues to stick to the plan to improve economic security and opportunity for everyone.

The Shadow Chancellor of the Labour Party, Rachel Reeves, says that it is still too early for Conservative ministers to celebrate the victory over inflation.

Prices of goods in the United Kingdom fell by 0,8% in April compared with the figures recorded for the same period last year. In this case, goods of all categories are taken into account, including food and household appliances. However, inflation in the service sector, which includes, among other things, the cost of hairdressing services and train tickets, did not fall last month, remaining elevated at 5.9%.

In recent years, the United Kingdom has faced a sharp increase in energy prices. The upward dynamic of the mentioned indicator has become the main reason for the high cost of living. This circumstance has also become a factor of financial pressure on households and businesses.

Global oil prices began to show a sharp increase in 2022. In October of the mentioned year, against the background of the growth in the cost of commodities, inflation in the United Kingdom reached 11%, which is the highest in the last 40 years.

In May, the Bank of England announced the expectation that inflation will approach the target shortly. At the same time, the financial regulator of the United Kingdom noted that more evidence of the positive dynamic of the mentioned indicator is needed to decide on cutting interest rates. Probably, this statement should be interpreted as a signal that the Bank of England may begin lowering the cost of borrowing in August or September. At the same time, an appropriate decision can be made only if the downward trend of inflation is maintained.

Rob Wood, chief UK economist at research consultancy Pantheon Macroeconomics, says that cutting the interest rate in August is a more realistic assumption compared with the likelihood of monetary easing starting in June.

It is worth noting that the decrease in the inflation rate in the United Kingdom in April turned out to be less significant compared to preliminary expectations. For example, Citi analysts predicted that the growth in the cost of goods and services would be recorded at 2.1%. Against the background of the discrepancy between expectations and the final result, hopes for early cutting of interest rates have weakened. In this case, it means, first of all, forecasts that the Bank of England will begin easing monetary policy in June.

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Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.