UK inflation has fallen to 2.6% driven by falling fuel prices – increasing pressure on the Bank of England to reduce interest rates.
However, rising household bills and the tariff war means that the good news may be short-lived.
March’s inflation drop is a relief for households, but economists predict it will rise sharply next month, possibly reaching 4% this summer.
The Bank of England knows the 4.5% interest rate is limiting economic growth, and its governor Andrew Bailey suggests a gradual and careful approach.
Household bills
April is a challenging month for household budgets due to widespread increases in costs
related to council tax, energy, and vehicles.
Most households will experience a maximum increase of 4.99% in council tax, with Birmingham residents facing a rise of 21% over the next two years.
Energy bills tied to the price cap will see an average annual increase of £111.
Water bills are rising by an average of £10 a month, with some companies such as Thames Water and Yorkshire Water implementing increases of 31% and 28% respectively.
Petrol and diesel car owners will incur an additional £5 in vehicle tax, while electric cars are no longer tax-exempt, leading to a £10 tax this year.
Postage rates are increasing by 3% for first-class and 2.4% for second-class stamps. TV licence fees increased by £5 on April 1st.
Mid-contract price rises for mobile and home broadband services will add an average of £21.99.
Worsening global backdrop
The global economic outlook is worsening, with a recession forecast for the UK due to its trade exposure.
While smaller tariffs may temporarily boost the economy, long-term business investment and consumer confidence are likely to suffer.
Consumer response
Many in the UK are opting to buy British and look for cheaper utility deals.
Wage stability may help, but many, especially low-income households, will need to tighten their belts.
