The biggest fall in inflation in 45 years brings hope the inflation surge is coming to an end – but its legacy, including higher prices, is here to stay

CPI inflation has returned to ‘normal’ levels, falling to 2.3 per cent in April 2024 – down from 3.2 per cent in March, and the closest to the Bank of England’s target of 2 per cent since July 2021 – raising hopes this is the end of the UK’s inflation surge, but services inflation remains elevated and the legacy of higher prices is here to stay, the Resolution Foundation said today (Wednesday).

April’s fall in inflation was driven largely by lower energy prices, as the Ofgem price cap fell from £1,928 in the first quarter of 2024 to £1,690 in Q2. As a result, since it peaked in October 2022, inflation has fallen at its fastest rate for nearly half a century (45 years).

The scale of this month’s fall has also brought the UK inflation rate below the euro area for the first time since March 2022, having already fallen below the US inflation rate (CPI for All Urban Consumers) in March 2024. This is especially welcome as the UK has had the largest inflation shock among the G7 economies over the past three years.

While inflation of 2.3 per cent is ‘normal’ by the standards of recent decades, the impacts of the inflation surge will remain with us for some time. Measures of service inflation not directly affected by energy prices proved more stubborn that expected with services inflation coming in at 5.9 per cent compared to 5.5 per cent expected by the Bank of England.

And this period of high inflation is set to leave its mark on the relative cost of essential goods, particularly energy and food prices. While overall prices have risen by 22 per cent since July 2021, energy prices have risen by 67 per cent and food by 32 per cent. This poses the biggest challenge to the poorest families who spend a greater proportion of their income on essentials compared to richer households.

The inflation shock has been so big it’s driven wider, and sometimes surprising, changes for British households. The famously robust British consumer has started saving, with families saving six per cent of their disposable incomes in the last three months of 2023 – nearly four times as much as before the pandemic (1.5 per cent in 2019).

James Smith, Research Director at the Resolution Foundation, said:

“CPI inflation falling to 2.3 per cent in April is a hugely welcome step, leaving the UK with a lower inflation rate than both the euro area and the US, for the first time since March 2022.

“But consumers are still living with far higher prices and how you take today’s inflation data will depend on whether your glass is half full or half empty – while it’s clearly good news headline inflation is back to normal levels, it is disappointing that price pressures haven’t fallen further and that measures of services inflation are proving more stubborn that expected.”