UK inflation slowed barely lower than anticipated final month, resulting in Metropolis economists and traders trimming their forecasts for rate of interest cuts this yr.
Official figures confirmed that inflation dipped in March to its lowest stage since September 2021, pushed by slower will increase for meals costs.
The Workplace for Nationwide Statistics (ONS) stated Shopper Costs Index inflation stood at 3.2% in March, down from 3.4% in February.
It confirmed a slowdown within the rising value of residing, however was nonetheless above the three.1% studying anticipated by a consensus of specialists.
The information, which additionally confirmed greater than anticipated companies inflation, got here after the ONS revealed on Tuesday that wage progress can be stronger-than-expected, after a 6% rise within the three months to February.
Consequently, 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 have been amongst those that earlier this week predicted rate-setters on the Financial institution would begin cuts in June, however stated they now anticipate this to occur later in the summertime, most probably on the Financial Coverage Committee’s August assembly.
ING’s James Smith stated the information “all however guidelines out a fee minimize in Might, and if we’re proper that April’s information proves stickier than the Financial institution is anticipating, then we expect that might drastically cut back the possibilities of a minimize in June, too”.
In the meantime, the customarily risky monetary markets have been much more pessimistic, pricing in that fee cuts will solely start in November.
Prime Minister Rishi Sunak stated the figures present “that after a troublesome 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 modifications to international 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 stated: “Inflation eased barely in March to its lowest annual fee for two-and-a-half years.
“As soon as once more, meals costs have been the principle motive 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 gas costs.”
Inflation for meals and non-alcoholic drinks dipped to 4% for the month, from 5% in February, to achieve its lowest stage since November 2021.
The elevated slowdown was partly pushed by a fall in meat costs and decrease rises for bread and cereals, the ONS stated.
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 outfitters elevated costs by lower than regular for this time of yr.
The biggest upwards strain 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, based on the ONS.
The general discount in inflation comes after fee setters on the Financial institution of England hiked rates of interest to a 15-year excessive of 5.25% as a way to put strain 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 direction of the central Financial institution’s 2% goal fee.
This has additionally elevated hypothesis that the central financial institution may minimize rates of interest within the coming months, though Governor Andrew Bailey and different members of the Financial institution’s financial coverage committee have to date instructed it’s too early for a minimize.
Ian Stewart, chief economist at Deloitte, stated: “Inflation is in retreat however the Financial institution of England can not but make certain that it’s overwhelmed.
“Headline inflation is prone to drop beneath 2% within the coming months, however to be assured it is going to keep there wage pressures must ease.
“With earnings rising at shut to six%, and the economic 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 additionally above economist predictions.
On Wednesday, Mr Sunak informed broadcasters: “At the moment’s figures present that after a troublesome couple of years, our financial plan is working and inflation continues to fall.
“We have now additionally seen power payments falling, mortgage charges falling and, simply this week, information confirmed individuals’s wages have been rising quicker than inflation for 12 months in a row.
“My easy message could be: if we follow the plan, we will make sure that everybody has a brighter future.”
Chancellor Jeremy Hunt stated: “The plan is working: inflation is falling quicker than anticipated, down from over 11% to three.2%, the bottom stage in practically two-and-a-half years, serving to individuals’s cash go additional.”
Rachel Reeves, Labour’s shadow chancellor, stated: “Conservative ministers can be hitting the airwaves at present to inform the British those 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 greater than the Financial institution of England’s goal.”