Easter discounts cool UK shop prices but Iran war inflation threat looms large

Easter promotions temporarily eased UK shop price inflation to 1.0% in April (from 1.2% in March), with food inflation slowing to 3.1%, but the piece warns this respite is likely short-lived. Retailers have absorbed costs to protect demand amid the steepest retail sales-volume drop in over 40 years, yet the Iran war’s disruption to energy and import routes is expected to feed through to higher sterling-denominated import costs. The IMF now sees UK inflation hitting 4% this year, while official CPI stood at 3.3% in March. The Bank of England’s MPC meets this week; policymakers face a stagflation trade-off between weak demand and rising costs, meaning any sign firms begin passing on higher input prices could force a tightening response. Overall the news increases downside pressure on sterling and raises the risk of a policy surprise should inflation re-accelerate.