UK inflation fell more than expected in March for the second month in a row thanks to lower fuel prices and softer hotel rates.
According to Office for National Statistics (ONS) data, the consumer price index (CPI) measure of inflation fell to 2.6% from 2.8% in February and 3% in January.
This means that prices have been rising at the slowest pace since December and are closer to the Bank of England's 2% target.
“Inflation eased again in March, driven by a variety of factors including falling fuel prices and unchanged food costs compared with the price rises we saw this time last year,” ONS chief economist Grant Fitzner said.
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It was a steeper drop than predicted by economists, who had expected a reading of 2.7% for March. It marks the lowest reading since December.
The ONS said falling fuel prices and flat costs for recreation and culture activities drove inflation lower, although this was offset by price rises for clothing and footwear. The price of food was also a factor in dragging down prices as it stayed flat in March having risen a year ago.
The average price of petrol fell by 1.6p a litre between February and March to stand at 137.5p a litre, down from 144.8p a litre in March 2024, the ONS said.
Closely watched measures of underlying inflationary pressures all fell. Core CPI, which excludes energy, food, alcohol and tobacco came in at 3.4%, down slightly from 3.5%.
Robert Wood, chief UK economist at Pantheon Macroeconomics, said: “Weekly motor fuels price data point to a 1.1% month-to-month fall, well below the 1.9% gain a year ago.
“A base effect from alcohol and tobacco prices a year ago should subtract another three basis points (0.03 percentage points) from headline CPI inflation.”
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However, the drop is expected to be short-lived as a raft of increases to household bills kicked in at the start of April.
“The dip in CPI inflation from 2.8% in February to 2.6% in March won’t be sustained for long, with inflation set to rise to around 3.5% in the coming months,” said Capital Economics’ Ruth Gregory.
“But we think a weak economy will quash inflation eventually and that the tariff shock has tilted the balance of risks towards lower inflation and faster falls in interest rates.”
The Bank of England will look at today's inflation data and wages when making a decision about whether to hold or cut interest rates.
Most economists are predicting that the main borrowing rate will be cut on 8 May from its current 4.5%.
Services inflation, a key measure of underlying price pressures for rate-setters, slowed more than expected to 4.7% in March from 5% in February. Economists had forecast 4.8%.
Chancellor Rachel Reeves said the news of inflation falling for a second month in a row is a "sign" that the government's plan is working.
Reacting to March's inflation rate, Reeves said "wages growing faster than prices and positive growth figures" are encouraging but added that there's "more to be done".
"I know many families are still struggling with the cost of living and this is an anxious time because of a changing world," she said.
"That is why the government has boosted pay for three million people by increasing the minimum wage, frozen fuel duty and begun rolling out free breakfast clubs in primary schools."
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The figures come at a time when the global economy is wrestling with an uncertain future as the US president seeks to reshape international trade and economies with sweeping tariffs.
Quilter investment strategist Lindsay James said the future for inflation remains “very uncertain”.
“Nobody quite knows what is going to happen next on president Trump’s tariff rollercoaster, and as such the economic environment will be volatile.”
“There are specific inflationary pressures for the UK, with the new rates of national insurance now in place on employers and the likely upward impact this will have on prices.”
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