LONDON – The UK inflation rate was widely expected to slow in April despite Iran’s continued blockade of the Strait of Hormuz and the resulting disruption to regional oil supplies. However, the scale of the slowdown came as a surprise.
The Office for National Statistics (ONS) said headline CPI rose 2.8% y/y in April, below expectations for a 3.0% print and down from March’s 3.3% rate. On the month, the index also undershot forecasts by two tenths, rising 0.7%, to match last month’s pace following a 0.4% increase previously.
Annual core CPI, which excludes food and energy, rose 2.5% in April, a tenth below forecasts and more than half a percentage point lower than March’s 3.1% reading. On the month, core prices increased 0.7% after a 0.4% rise previously.
Statisticians said housing and household services made the largest downward contribution to the change in the annual CPI rate.
Grant Fitzner, chief economist at the ONS, said: “There was a notable fall in annual inflation led by lower electricity and gas prices. This was due to the Government’s energy bill support package reducing variable and fixed tariffs, along with lower global wholesale energy prices before the conflict in the Middle East, which fed through to the reduction in the Ofgem cap.”
Partially offsetting the decline were upward contributions from a sharp increase in motor fuel prices, though these were counterbalanced by softer readings elsewhere within the transport category.
Fitzner added that there had been a “further increase in petrol and diesel prices, and an uptick in the cost of clothing and footwear.”
Breaking down the core reading, the ONS reported that the CPI goods annual rate rose to 2.4% in April from 2.1%, while the CPI services annual rate slowed sharply to 3.2% from 4.5% in March.
Source: JP Morgan
Allan Monks, chief UK economist at JP Morgan, said a sizeable drop in inflation had been expected in April as fiscal influences shifted from boosting prices to weighing on them. “But April is the start of the financial year when many other prices are also reset, and the net result of these factors produced a downshift in inflation that was larger than expected.”
On the softer services outturn, Monks said part of the weakness reflected a 2.8% decline in transport services, likely due to delays in the pass-through of higher fuel costs into airfares and broader consumer prices. He also highlighted weakness across several underlying services categories, including catering and non-recreational services.
“These latter two components are included in the BoE’s ‘supercore’ services metric. After a run of five months of strength, averaging 0.4%, we estimate that April fell 0.1% m/m, using our seasonal adjustment. That is rare and the first such decline since November 2020.”
Pipeline inflation
Source: Office for National Statistics
Potentially of greater significance for investors was factory gate price data, which showed a renewed acceleration in raw material costs.
Producer input prices rose 7.7% y/y in April, nearly two percentage points above forecasts and up from a revised 5.4% increase in March. On the month, input prices increased 2.4%, stronger than the 1.0% consensus estimate, though below the revised 4.3% rise previously.
PPI output prices also came in firmer than expected. The annual rate accelerated to 4.0% from 3.0% in March, above forecasts of 2.8%.
The ONS said crude oil and refined petroleum products made the largest upward contributions to the annual rates of input and output price inflation, respectively.
Policymakers set to wait it out
“Taken together with yesterday’s weaker labour market report, the incoming data are softer than the Bank of England expected and buy it more time before potentially delivering higher rates,” Monks said.
On Tuesday, HMRC-based estimates showed that the number of payrolled employees in the UK fell by 104,000, or 0.3%, between March 2025 and March 2026, and by 28,000, or 0.1%, between February and March this year.
Wage data also pointed to easing pressures. The ONS reported annual growth in average regular earnings, excluding bonuses, slowed to 3.4%, while total earnings growth, including bonuses, eased to 4.1%. It marked the weakest regular pay growth since the August-to-October 2020 period, when the rate stood at 2.8%.
In a sign that the Government was responding to consumer concerns, the Treasury announced it would extend the five pence fuel duty cut until the end of the year. The measure had previously been due to expire in September.
Jane Foley, senior FX strategist at Rabobank, noted that at one stage near the start of the Iran conflict, markets had priced in the possibility of as many as four quarter-point BoE rate hikes this year.
“The market is no longer so confident that the BoE is on the cusp of launching an aggressive programme of interest rate hikes,” Foley said. “The BoE’s next policy meeting is scheduled for 18 June, and current market pricing is biased towards the risk of no change on that date, although around 45 basis points of tightening is priced in over a six-month horizon.”
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- Headline CPI falls to 2.8% y/y despite surging fuel prices
- Core inflation tumbles as underlying price pressures ease
- Factory gate costs accelerate on rising oil and fuel outlays
- Soft data curb bets on aggressive BoE tightening
By Harry Daniels
LiveSquawk News
@HarryDaniels71
20 May 2026 | 16:30 GMT
LONDON – The UK inflation rate was widely expected to slow in April despite Iran’s continued blockade of the Strait of Hormuz and the resulting disruption to regional oil supplies. However, the scale of the slowdown came as a surprise.
The Office for National Statistics (ONS) said headline CPI rose 2.8% y/y in April, below expectations for a 3.0% print and down from March’s 3.3% rate. On the month, the index also undershot forecasts by two tenths, rising 0.7%, to match last month’s pace following a 0.4% increase previously.
Annual core CPI, which excludes food and energy, rose 2.5% in April, a tenth below forecasts and more than half a percentage point lower than March’s 3.1% reading. On the month, core prices increased 0.7% after a 0.4% rise previously.
Statisticians said housing and household services made the largest downward contribution to the change in the annual CPI rate.
Grant Fitzner, chief economist at the ONS, said: “There was a notable fall in annual inflation led by lower electricity and gas prices. This was due to the Government’s energy bill support package reducing variable and fixed tariffs, along with lower global wholesale energy prices before the conflict in the Middle East, which fed through to the reduction in the Ofgem cap.”
Partially offsetting the decline were upward contributions from a sharp increase in motor fuel prices, though these were counterbalanced by softer readings elsewhere within the transport category.
Fitzner added that there had been a “further increase in petrol and diesel prices, and an uptick in the cost of clothing and footwear.”
Breaking down the core reading, the ONS reported that the CPI goods annual rate rose to 2.4% in April from 2.1%, while the CPI services annual rate slowed sharply to 3.2% from 4.5% in March.
Allan Monks, chief UK economist at JP Morgan, said a sizeable drop in inflation had been expected in April as fiscal influences shifted from boosting prices to weighing on them. “But April is the start of the financial year when many other prices are also reset, and the net result of these factors produced a downshift in inflation that was larger than expected.”
On the softer services outturn, Monks said part of the weakness reflected a 2.8% decline in transport services, likely due to delays in the pass-through of higher fuel costs into airfares and broader consumer prices. He also highlighted weakness across several underlying services categories, including catering and non-recreational services.
“These latter two components are included in the BoE’s ‘supercore’ services metric. After a run of five months of strength, averaging 0.4%, we estimate that April fell 0.1% m/m, using our seasonal adjustment. That is rare and the first such decline since November 2020.”
Potentially of greater significance for investors was factory gate price data, which showed a renewed acceleration in raw material costs.
Producer input prices rose 7.7% y/y in April, nearly two percentage points above forecasts and up from a revised 5.4% increase in March. On the month, input prices increased 2.4%, stronger than the 1.0% consensus estimate, though below the revised 4.3% rise previously.
PPI output prices also came in firmer than expected. The annual rate accelerated to 4.0% from 3.0% in March, above forecasts of 2.8%.
The ONS said crude oil and refined petroleum products made the largest upward contributions to the annual rates of input and output price inflation, respectively.
“Taken together with yesterday’s weaker labour market report, the incoming data are softer than the Bank of England expected and buy it more time before potentially delivering higher rates,” Monks said.
On Tuesday, HMRC-based estimates showed that the number of payrolled employees in the UK fell by 104,000, or 0.3%, between March 2025 and March 2026, and by 28,000, or 0.1%, between February and March this year.
Wage data also pointed to easing pressures. The ONS reported annual growth in average regular earnings, excluding bonuses, slowed to 3.4%, while total earnings growth, including bonuses, eased to 4.1%. It marked the weakest regular pay growth since the August-to-October 2020 period, when the rate stood at 2.8%.
In a sign that the Government was responding to consumer concerns, the Treasury announced it would extend the five pence fuel duty cut until the end of the year. The measure had previously been due to expire in September.
Jane Foley, senior FX strategist at Rabobank, noted that at one stage near the start of the Iran conflict, markets had priced in the possibility of as many as four quarter-point BoE rate hikes this year.
“The market is no longer so confident that the BoE is on the cusp of launching an aggressive programme of interest rate hikes,” Foley said. “The BoE’s next policy meeting is scheduled for 18 June, and current market pricing is biased towards the risk of no change on that date, although around 45 basis points of tightening is priced in over a six-month horizon.”