UK inflation slows to 2.8% as energy price cap softens impact of rising fuel costs | Inflation

UK inflation slowed to 2.8% in April, the lowest rate in more than a year, as a reduction in the household energy price cap helped soften the sharp rise in fuel costs since the start of the Iran war.

The Office for National Statistics (ONS) said the consumer prices index measure of inflation eased from March’s reading of 3.3%, suggesting the impact of the Iran war has not yet hit UK households as much as feared, despite prices at the pumps rising at the fastest rate in nearly four years.

The reading beat economists’ forecasts of a decline to 3% and was the lowest rate since March 2025.

The fall was partly down to Ofgem’s lower energy price cap, which reduced the typical annual dual-fuel bill in Great Britain to £1,641 from April – a fall of £117. Electricity prices dropped 8.4% in April, the ONS said.

The slowdown in the pace of price rises will be welcome news for the chancellor, Rachel Reeves, after she shifted some green energy costs away from household bills and into general taxation in her November budget to help ensure a lower price cap.

Reeves, who is due to announce a package of measures on the cost of living on Thursday, including an expected cancellation of this autumn’s rise in fuel duty, said: “The war in Iran is not our war but one we will need to respond to, and the decisions I took in the budget last year have kept inflation down as we deal with global instability.

“We have the right economic plan, and to change course now would risk our economic stability and leave working people worse off. We have already taken £117 off energy bills, frozen rail fares and lifted the two-child limit, and over today and tomorrow I’ll set out the next phase of how we will support UK households.”

Water bills and vehicle excise duty increased by less in April this year compared with 2025, when they both rose sharply. Prices such as package holidays as well as air fares fell by 3.3%.

Services inflation, which is considered a key sign of underlying price pressures, was 3.2%, the lowest since January 2022.

Economists believe the drop in inflation is unlikely to last as petrol and diesel prices have soared since the start of the Middle East conflict, reflecting a jump in the global oil price to more than $110 a barrel as the closure of the strait of Hormuz affects energy supplies.

The household energy price cap, which is updated on a quarterly basis, will change in July and is forecast to jump 13% to £1,850 a year.

Suren Thiru, the chief economist at the Institute of Chartered Accountants in England and Wales, said April’s slowdown in inflation was likely to be “a last interlude before the Iran war-induced inflation storm hits”.

He said: “This decline could be the final fall in inflation this year, with surging fuel and food costs set to push it to 4% this summer.”

The ONS said there was a 23% rise in motor fuel prices in the year to April, compared with a rise of only 4.9% in the year to March, the highest annual increase since September 2022, when energy prices were being hit by the Russian invasion of Ukraine.

The soaring price of oil is already being seen in the costs UK manufacturers are facing, which are likely to be passed on to consumers soon.

Core inflation, which strips out more volatile measures such as energy and food, was 2.5%, down from 3.1% in March.

Producer price inflation, which measures the change in the price of goods bought and sold by UK manufacturers, was 7.7% in April, up from a revised rate of 5.3% in March. This was the sharpest increase in prices since March 2023, when the UK was suffering from double-digit rises in inflation each month, and raises fear of higher inflation for shoppers down the line as companies pass on costs to consumers.

The ONS said the increase was primarily driven by rises in the cost of crude oil, which rose 75.4% compared with April 2025.

The overall drop in the inflation rate comes after ONS data released on Tuesday showed wage growth slowed and unemployment rose in March. The figures are likely to reduce the likelihood of the Bank of England raising interest rates at its next meeting on 18 June.

Rate setters at the Bank have to find a balance between containing inflation and not denting economic activity. The Bank held rates at 3.75% at its meeting last month but said it was prepared to push up the cost of borrowing if inflation continued to rise.

Martin Beck, the chief economist at WPI Strategy, said: “A prolonged pause from the Bank of England now looks the most plausible outcome, with the economy hostage to events in the Middle East and their impact on energy prices.”