What might have been a curtain call for the Government, with inflation falling to 2.3 per cent, was instead greeted with a sharp intake of breath. The markets were hoping for better, with a consensus forming around 2.1 per cent. As a result, a June interest rate cut now appears less, not more likely. Meanwhile, voters, still paying the consequences of double-digit price rises and higher mortgage repayments, do not yet seem in the mood to give thanks.
The drop in inflation was driven largely by a decline in the energy price cap, which fuelled cheaper gas and electricity bills, from £3,116 per year last spring to £1,690. What is likely to concern the Bank of England and Treasury, however, is that services inflation barely fell, while core inflation, which strips out more volatile products such as food and energy, also declined by less than expected.
