The UK’s Consumer Prices Index (CPI) inflation rate decreased to 2.8% in April, down from 3.3% in March, marking the lowest level in over a year.This drop was larger than expected and was primarily driven by a 7% reduction in Ofgem’s energy price cap from the beginning of April, equivalent to around £10 a month for a typical dual-fuel household.Government measures, including shifting some renewable costs to general taxation, contributed to this relief.However, rising fuel prices partially offset these gains, with petrol increasing by 16.6p to 156.8p per litre and diesel rising by 31.3p to 190p per litre, influenced by the conflict involving Iran and higher global oil prices exceeding $100 a barrel.Economists caution that this decline may be temporary.

The ongoing situation in the Middle East, particularly any blockade of the Strait of Hormuz, is expected to push wholesale energy costs higher, with the price cap potentially rising by 13% to £1,850 annually from July.This could feed into broader price increases for food and other goods as costs are passed on to consumers.The Bank of England has forecasted inflation could reach as high as 6.2% in a worst-case scenario or 3.6% by year-end in a more benign outlook.Interest rate decisions remain uncertain, with the Bank possibly holding or raising rates above the current 3.75%.The International Monetary Fund suggests rates could stay steady through 2026, with inflation returning to the 2% target by the end of 2027.

Chancellor Rachel Reeves is anticipated to announce cost-of-living support measures, potentially including the cancellation of a planned fuel duty increase.Overall, while households are currently experiencing some relief, global pressures indicate a challenging period ahead for the UK economy.