Inflation fell more sharply than expected in April, offering Rachel Reeves a brief reprieve before what ministers increasingly fear could become a renewed cost-of-living squeeze driven by turmoil in the Middle East.
Figures from the Office for National Statistics showed Consumer Prices Index inflation easing to 2.8 per cent, down from 3.3 per cent in March and below City expectations.
The decline was driven largely by lower household energy bills after Ofgem reduced its energy price cap by 7 per cent at the start of April, cutting average dual-fuel bills by around £10 a month.
But the Chancellor moved quickly to warn that the improvement may prove temporary, as escalating tensions involving Iran and disruption in the Strait of Hormuz threaten to drive fuel and commodity prices sharply higher later this year.
“The war in Iran is not our war but one we will need to respond to,” Rachel Reeves said, arguing that her fiscal decisions had helped shield Britain from wider global instability.
She insisted Labour had “the right economic plan” and warned that abandoning it would risk economic stability and leave working households worse off.
The Government is now preparing a fresh package of cost-of-living measures amid mounting concern over fuel prices, food inflation and wider economic fragility.
In a sign of the pressure building inside Whitehall, ministers have already softened aspects of Britain’s sanctions regime against Russia, allowing imports of diesel and jet fuel refined in third countries using Russian crude oil.
The move, aimed partly at avoiding disruption during the summer travel season, has prompted fierce criticism from opposition parties, who accuse Labour of undermining its own stance on the war in Ukraine.
Kemi Badenoch described the sanctions waiver as “insane”, accusing ministers of quietly reopening the British market to Russian-linked energy products.
The Chancellor is also expected to abandon a planned rise in fuel duty due later this year, as petrol prices continue to climb.
According to the RAC, the average price of petrol has reached 158.5p per litre — the highest level since late 2022 and above peaks seen during earlier phases of the Iranian oil crisis.
Simon Williams, the RAC’s head of policy, warned motorists faced further increases heading into the summer holiday period.
At the same time, ministers have been forced to deny reports that they were considering encouraging supermarkets to cap the prices of staple goods such as bread, milk and eggs in exchange for regulatory concessions.
Dan Tomlinson, a Treasury minister, insisted the Government was not pursuing “1970s-style” price controls after reports suggested officials had explored voluntary agreements with retailers.
The British Retail Consortium warned that rising food prices were increasingly driven by government-imposed costs and energy pressures rather than by retailer behaviour.
Helen Dickinson, the organisation’s chief executive, said ministers should focus on reducing regulatory burdens instead of attempting to manage prices indirectly.
Food inflation rose to 3.7 per cent in April, underlining concerns that broader price pressures are beginning to re-emerge even as headline inflation falls.
Meanwhile, shadow chancellor Mel Stride claimed Britain remained “weak and exposed” to global shocks, arguing that markets were increasingly nervous about Labour’s economic direction.
For ministers, the danger is clear: April’s inflation figures may look encouraging on paper, but the combination of geopolitical instability, rising fuel costs and weakening consumer confidence threatens to turn a moment of relief into yet another economic headache by the autumn.
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