UK Inflation Slows to 2.8% as Energy Bill Relief Offsets Fuel Shock

UK inflation surprised to the downside in April, easing more than expected despite higher fuel costs linked to the Middle East energy shock.

Key insights:

• Consumer price inflation slowed to 2.8% YoY in April, down from 3.3% in March and below market expectations of around 3.0%.
• Monthly CPI rose 0.7%, compared with 1.2% in April 2025, helped by a favorable base effect.
• Core CPI eased to 2.5%, while services inflation fell to 3.2%, its lowest level since January 2022.
• Housing and household services were the biggest downward driver, mainly due to lower electricity and gas bills after policy measures reduced household energy costs.
• The relief may be temporary. Motor fuel prices rose 23.0% YoY, with petrol averaging 156.8 pence per litre and diesel 190.0 pence per litre, the highest levels since 2022.
• Sterling weakened after the data, with the pound slipping around 0.1% toward USD 1.3376, as markets reassessed the Bank of England policy outlook.
• The Bank of England held Bank Rate at 3.75% in April, with its next decision due on 18 June.

The main takeaway is that lower household energy bills gave UK inflation a temporary reprieve, but the inflation story is not fully resolved. Fuel costs, energy market volatility and possible second round effects could keep the Bank of England cautious, even as weaker CPI and softer labour market signals reduce the urgency for further rate increases.