Ofgem energy price cap sees inflation fall – but cost of living could spike in coming months

A fall in Ofgem’s energy price cap saw the rate of inflation drop in April – but experts warn it will be a temporary reprieve

Inflation eased to 2.8% in April thanks to a fall in Ofgem’s energy price cap for millions of households.

The consumer price index dropped from 3.3%, the Office for National Statistics said, which also revealed a welcome drop in food price inflation too.

However, it is expected to be a temporary reprieve as the Middle East war is set to drive living costs back up in the coming months. Before the Middle East war began, economists predicted inflation would ease back to the Bank of England’s 2% target.

Ofgem’s price cap fell to £1,641 a year in April thanks to measures announced by Chancellor Rachel Reeves to remove certain policy costs from bills. Industry experts Cornwall Insight this week predicted that Ofgem’s price cap could jump by more than £200 a year in July.

Ms Reeves is expected to unveil further measures this week to ease the pressure on households, which could involve further targeted help with energy costs.

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It comes amid reports that supermarkets may be asked to freeze the prices of essential goods such as eggs, bread and milk in an attempt to ease the impact of the Iran war.

According to the Financial Times, the Treasury has said it would in return offer supermarkets “incentives” which may include easing packaging policies and delay potentially costly changes to healthy food rules. This would be agreed to by retailers on a voluntary basis, and would not emulate the strict price controls brought in during the inflation crisis of the 1970s.

The ONS said food and soft drink prices rose by 3% in the 12 months to April, down from 3.7% in March.

Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said: “These figures will feel bittersweet for rate-setters as inflation would have almost certainly fallen back to the Bank of England’s 2% target in April had the Iran conflict not dramatically flipped the UK’s outlook from disinflation to stagflation.

“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, particularly as July’s Ofgem price cap reset will mean eyewatering increases in household energy bills.”

Last month’s drop in inflation was more than expected, with economists saying it makes it even less likely the Bank of England will raise interest rates when it meets next month. A hike would have piled more pressure on borrowers.

Yael Selfin, chief economist at KPMG, said: “This effectively closes the door on a potential rate hike at the June meeting, with the BoE likely to wait for clearer evidence of a renewed pickup in domestic inflation.”

TUC General Secretary Paul Nowak said: “It’s welcome that government action on energy bills has brought down inflation – and today’s data suggest that before the war wider prices were also on track to fall more sharply than many expected. But the longer Trump’s illegal war goes on, the greater the threat to households and firms.”