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U.K. Inflation Falls to 2.3 Percent, Lowest in Three Years

Britain’s inflation rate slowed last month to its lowest level in about three years, further cementing the case for the Bank of England to cut interest rates later this year.

Consumer prices rose 2.3 percent in April from a year earlier, down from 3.2 percent in March, the Office for National Statistics said on Wednesday. The rate, which declined slightly less than economists expected, was the lowest since July 2021 and is approaching the Bank of England’s 2 percent target.

Inflation was pulled down by a decrease in the cap on household energy bills set by a government regulator. Food inflation also slowed to 2.9 percent, from 4 percent.

The steep decline in headline inflation rate, which includes food and energy, signals a new phase in British policymakers’ battle against inflation. Having aggressively raised interest rates after prices soared following pandemic lockdowns and the turmoil in energy markets after Russia’s invasion of Ukraine, central bankers are trying to determine how much inflationary pressure is left in the economy and how soon they can cut interest rates.

It’s a challenge shared by other major central banks. In the eurozone, officials have signaled rates cuts could come as soon as this summer, whereas in the United States, inflation remains relatively hot at 3.4 percent.

In Britain, the central bank expected inflation to fall to 2.1 percent this month. It forecast that, after a few months around its target, inflation would bounce a little higher and fluctuate around 2.5 percent until late 2025 as energy prices, which have stabilized, no longer pull down the overall inflation rate.. But policymakers are scrutinizing wage growth and price increases in the services sector, such as restaurants, hotels and concerts, which are traditionally stubborn components of inflation and remain uncomfortably strong, hovering around 6 percent annual growth.

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