An Increase in Energy Prices Doubles UK’s Inflation in April

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An Increase in Energy Prices Doubles UK’s Inflation in April

 An Increase in Energy Prices Doubles UK’s Inflation in April
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Summary

  • UK’s Consumer Price Inflation rose to 1.5% in April due to an increase in electricity bills and household gas prices as well as oil prices.
  • Since the start of the pandemic in March last year, this is the highest that the inflation level has reached.
  • The latest figures give rise to concerns over increasing cost of living trend.

UK’s Consumer Price Inflation (CPI) increased to 1.5 per cent in April, more than double to what it was in the previous month of March (0.7 per cent). The surge was primarily driven by an increase in the electricity bills and household gas prices as well as oil prices. Since the pandemic began in March 2020, this is the highest level that inflation has reached, according to the Office of National Statistics’ (ONS’) figures.

In the beginning of the month, Ofgem lifted the price cap on electricity bills and gas to pre-pandemic levels, which led to the price rise. The cap was increased to £1,138, up by £96 as the default tariff for 11 million customers.

Also read: Focus On 2 FTSE Food Stocks as UK Consumer Confidence Soars To 5 Year High

Though the CPI is still below the 2 per cent target set by the Bank of England (BoE), the latest figures give rise to concerns over the increasing cost of living trend. A rise in clothing as well as footwear cost, as restrictions were eased and retailers opened their shops, contributing to the jump in inflation. Certain hike in the clothing and footwear cost also contributed to the jump from the previous month’s figure.

According to the ONS, an increase in the energy price cap was the biggest contributor to the jump in inflation. Its chief economist Grant Fitzner said April’s inflation was primarily because prices showed a rising trend in comparison to falling prices at the onset of the pandemic this time around in last year and got reflected most prominently in clothing prices and household utility bills.

Fitzner further said that as crude price continued to rise, it has fed into the price of motor fuels which have reached their highest since January last year. The price of crude oil has tripled in the last year after dropping to about £14.08 per barrel in April 2020. According to the ONS, a part of that rise was passed to the pumps and petrol’s average price at the pumps last month was 125.5 pence per litre, an increase of 1.8 pence month-on-month.

Also read: UK Economy Recovered from Pandemic Lows in March, Claims New ONS Data

BoE governor Andrew Bailey said that the price rise is a temporary phenomenon, but the UK’s central bank as well, as other central banks are tracking the signs of supply chain strains as economies open up, impacting inflation. The boost to the hospitality sector through the relaxation in VAT would also aid in to rise in prices. On the other hand, the furlough scheme coming to an end and with it a probable increase in unemployment would ease the pressures on price rise.

However, experts have pointed out that the UK would see a further rise in inflation in the next few months as prices of package holidays, air travel, and domestic accommodation increase due to rebounding consumer demand.

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