UK inflation slowed barely lower than anticipated final month, resulting in Metropolis economists and buyers trimming their forecasts for rate of interest cuts this yr.
Official figures confirmed that inflation dipped in March to its lowest degree since September 2021, pushed by slower will increase for meals costs.
The Workplace for Nationwide Statistics (ONS) mentioned Client Costs Index inflation stood at 3.2% in March, down from 3.4% in February.
It confirmed a slowdown within the rising price of dwelling, however was nonetheless above the three.1% studying anticipated by a consensus of consultants.
The info, which additionally confirmed larger than anticipated companies inflation, got here after the ONS revealed on Tuesday that wage progress can also be stronger-than-expected, after a 6% rise within the three months to February.
Because of this, many Metropolis economists pushed again their forecasts for reductions to rates of interest.
UK rates of interest presently sit at a 15-year excessive of 5.25% after hikes by the Financial institution of England in an effort to quash inflation.
Specialists at ING and Pantheon Macroeconomics had been amongst those that earlier this week predicted rate-setters on the Financial institution would begin cuts in June, however mentioned they now anticipate this to occur later in the summertime, most probably on the Financial Coverage Committee’s August assembly.
ING’s James Smith mentioned the info “all however guidelines out a price reduce in Could, and if we’re proper that April’s knowledge proves stickier than the Financial institution is anticipating, then we predict that may drastically cut back the probabilities of a reduce in June, too”.
In the meantime, the usually risky monetary markets had been much more pessimistic, pricing in that price cuts will solely start in November.
Prime Minister Rishi Sunak mentioned the figures present “that after a tricky couple of years, our financial plan is working”, though the discount in inflation is primarily linked to rate of interest rises by the Financial institution of England and adjustments to world value pressures.
The drop was closely linked to a slowdown in meals value inflation, which was additionally its lowest for greater than two years.
ONS chief economist Grant Fitzner mentioned: “Inflation eased barely in March to its lowest annual price for two-and-a-half years.
“As soon as once more, meals costs had been the principle cause for the autumn, with costs rising by lower than we noticed a yr in the past.
“Equally to final month, we noticed a partial offset from rising gasoline costs.”
Inflation for meals and non-alcoholic drinks dipped to 4% for the month, from 5% in February, to succeed in its lowest degree since November 2021.
The elevated slowdown was partly pushed by a fall in meat costs and decrease rises for bread and cereals, the ONS mentioned.
Furnishings and family items costs additionally contributed to the autumn, with costs within the sector down 0.9% in March in contrast with the identical month final yr.
Elsewhere in retail, clothes and footwear inflation additionally slowed to 4% for the month, from 5% in February, after girls’s clothes shops elevated costs by lower than regular for this time of yr.
The biggest upwards stress got here from motor fuels, after the typical value of petrol rose by 2.6p per litre between February and March 2024 to face at 144.8 pence per litre, in line with the ONS.
The general discount in inflation comes after price setters on the Financial institution of England hiked rates of interest to a 15-year excessive of 5.25% so as to put stress on demand.
Economists anticipate inflation for April to indicate an extra fall, supported by one other drop in power costs, as CPI strikes nearer in the direction of the central Financial institution’s 2% goal price.
This has additionally elevated hypothesis that the central financial institution might reduce rates of interest within the coming months, though Governor Andrew Bailey and different members of the Financial institution’s financial coverage committee have up to now recommended it’s too early for a reduce.
Ian Stewart, chief economist at Deloitte, mentioned: “Inflation is in retreat however the Financial institution of England can’t but make sure that it’s crushed.
“Headline inflation is more likely to drop beneath 2% within the coming months, however to be assured it would keep there wage pressures have to ease.
“With earnings rising at shut to six%, and the financial system reviving, the Financial institution can be in no hurry to chop rates of interest.”
On Tuesday, official figures confirmed common wages progress, excluding bonuses, at 6% within the three months to February, which was a slight fall but in addition above economist predictions.
On Wednesday, Mr Sunak instructed broadcasters: “At present’s figures present that after a tricky couple of years, our financial plan is working and inflation continues to fall.
“We’ve got additionally seen power payments falling, mortgage charges falling and, simply this week, knowledge confirmed individuals’s wages have been rising quicker than inflation for 12 months in a row.
“My easy message can be: if we keep on with the plan, we are able to be sure that everybody has a brighter future.”
Chancellor Jeremy Hunt mentioned: “The plan is working: inflation is falling quicker than anticipated, down from over 11% to three.2%, the bottom degree in practically two-and-a-half years, serving to individuals’s cash go additional.”
Rachel Reeves, Labour’s shadow chancellor, mentioned: “Conservative ministers can be hitting the airwaves at this time to inform the British folks that they’ve by no means had it so good.
“Costs are nonetheless excessive within the retailers, month-to-month mortgage payments are going up and inflation continues to be larger than the Financial institution of England’s goal.”
