Inflation cools more than expected as petrol prices drop

UK inflation easted in the year to March following a drop in fuel prices, official figures out today showed.

Prices increased by 2.6% in the year to March, falling for the second month in a row.

“The only significant offset came from the price of clothes which rose strongly this month,” Grant Fitzner, chief economist at the ONS, says.

Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK inflation figures: “A bigger than expected drop in headline inflation should be celebrated, especially considering what households have had to deal with over the past few years.

“But this month’s figures almost seem redundant considering all those price rises that set in at the start of April, which are expected to push inflation higher than any of us would like. From water bills to energy costs, all those things we need jumped up at the start of what has been cheerfully labelled ‘Awful April’.

“Those price hikes will have been offset for some by the rise in the National Living Wage and increases to the state pension and benefits, which is another consideration for those MPC members who will have to make their decision about where interest rates go next ahead of April’s inflation data.

“It’s an unenviable task made even more difficult by the battering from what some have now dubbed ‘Storm Donald’ as the US president’s messy tariff policy wreaks havoc with the global economy.

“At 2.6% inflation is ahead of the Bank’s 2% target but it’s likely to be sufficiently low to give rate setters the green light to keep cutting the base rate, with markets currently pricing in an 85% chance of a quarter percentage point cut at the next meeting.

“The bigger question is where do rates go next? We know increased household costs will colour next month’s data but Donald Trump’s tariff policy could potentially result in a dumping of lower priced goods on UK shores. Concerns about global growth may keep the oil price subdued, though homegrown issues like increased labour costs could result in a significant fall in employment and lower wage growth.

“The Bank had forecast inflation to peak at around 3.7% in the summer, but that forecast could be scaled back as the spectre of a trade war looms over the global economy.”