Sunak May Struggle to Turn Key Inflation Victory Into Votes

-- Of the five goals Rishi Sunak set for himself at the start of 2023, he met just one — halving inflation by the end of last year. On Wednesday, he may be able to go further and declare victory over the cost-of-living crisis, with the consumer price growth forecast to drop to near the 2% target and hit its lowest level since July 2021.A bigger challenge will be convincing the electorate he deserves the credit for another upbeat number from the Office for National Statistics.

GDP is also being boosted by a rising population. Output per head paints a less flattering picture. The historic seven-quarter slide ended with a bounce at the start of this year. But GDP per capita was still 0.7% weaker than a year earlier. Energy bills fell 12% last month to a two-year low, with a further 7% reduction forecast from July. Food inflation has also dropped sharply. That will take some pressure off lower income households who bore the brunt of the price shock. The BOE forecasts living standards, as measured by post-tax real household income, to improve faster this year than the annual average over the decade before the pandemic.

“The key thing really is what happens to services inflation,” said James Smith, developed markets economist at ING. “April is just this very volatile month just because there’s so many different areas that are resetting their prices and obviously wage growth has been quite high.”

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