In UK Inflation Falls To 2.8%; Chancellor Says ‘Right Economic Plan’.

London; May 2026: Inflation in the United Kingdom has eased by more than expected according to April 2026 data. The rate of price rises fell to 2.8%, down from 3.3% in the preceding month March 2026. This is much beyond what the economists had widely expected that inflation would ease to 3% on the back of a lower energy price cap that came into force on 01st April.

In the meantime, Ofgem lowered its energy price cap by 07%, or £10 a month, for the average household using both electricity and gas, which was driven by government measures to reduce bills.

With this, the United Kingdom now has one of the lowest inflation rates in the G7, after France and Italy. The US and Germany recorded inflation rates higher than 2.8% in April. The latest data from Japan is awaited, but as per March 2026 figures – Japan had a record low of 1.50%

While interest rates tend to fall when inflation does, it’s unlikely that today’s figure will result in a base rate cut by the Bank of England. The dip in inflation is not expected to last as energy prices are due to rise and chaos caused by the Middle East conflict is expected to continue. As a result, economists at Capital Economics have said it is ‘certainly possible’ that the Bank of England will opt for one or two interest rate hikes in the coming months.

The firm’s deputy chief economist, Ruth Gregory, said: “If energy prices ease in line with our baseline scenario, our best guess is that interest rates will remain at 3.75% this year. But the longer energy prices stay high, the more likely second-round effects will be. So, one or two hikes in the coming months are certainly possible if energy prices stay at around $110 per barrel or rise even further. The Bank’s next decision maker panel which is due on 05th June, which will provide a measure of business’s expectations, will be crucial as it will provide an early sign of any changes in wage and price dynamics”.

Chancellor Rachel Reeves in her statement reiterated that the government has the ‘right economic plan’. “To change course now would risk our economic stability and leave working people worse off”, she added. “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 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”.

Reeves is expected to outline a package of cost-of-living support this week in response to expectations of surging inflation in the coming months. While she has welcomed today’s figure, shadow chancellor Mel Stride says prices are still ‘rising far too fast’. “The recent spike in borrowing costs shows markets are increasingly worried about Labour’s leadership chaos and economic mismanagement,” Stride has said.

What has helped bring inflation down? – Lower electricity and gas prices helped to drive inflation down last month, the Office for National Statistics has said. ONS chief economist Grant Fitzner said: “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”. Food prices, particularly for chocolate and meat products, and the price of package holidays drove inflation down further, he added.

All of these downward pressures were partially offset by an increase in petrol, diesel, clothing and footwear prices. “The annual cost of both raw materials and goods leaving factories continued to rise, driven again by higher crude oil and petrol prices”, Fitzner added.

Team Maverick.