Shock fall in consumer inflation puts pound on the back foot

A surprise fall in inflation offered temporary respite to households on Wednesday, but put more pressure on a struggling pound.

The Consumer Prices Index fell to 2.4% in April despite City expectations that it would remain stuck at 2.5% on the back of rising oil prices and a new sugar tax.

But the pound dipped almost a cent to fresh year-lows against the dollar as factors such as the timing of Easter on the price of airfares dragged inflation lower.

The lower CPI — albeit still above the Bank’s 2% target — reduces the immediate pressure on the monetary policy committee to raise interest rates.

PwC’s chief economic adviser and former Bank rate-setter Andrew Sentance said the figures did not necessarily herald a “sustained declining trend”.

He warned: “The most likely scenario appears to be that UK inflation will remain stuck around 2.5% over the summer and could pick up in the next couple of months.”

Inflation is at least lower than growth in wages, which the MPC is monitoring carefully to decide when to pull the trigger on rates.

The economy grew just 0.1% in the first quarter, which the Bank believes is a short-term blip.

ING’s James Smith said: “It all comes down to whether the data shows sufficient signs of recovery before August.”