Inflation drops to 3.2% in March

Inflation in March fell to 3.2% following the drop to 3.4% in February, the lowest it has been since 2021, the Office for National Statistics (ONS) has revealed.

On a monthly basis, consumer prices index (CPI) inflation increased by 0.6% in March, compared to a rise of 0.8% a year previously.

The largest downward contribution to the monthly change in the CPI annual rate came from food, which increased by 4% month-on-month, with prices rising by less than in March 2023. However, this was partially offset by increases in motor fuels prices.

Core CPI, which excludes energy, food, alcohol and tobacco, rose by 4.7% in the 12 months to March, slightly down on 4.8% in February.

Head of money and markets at Hargreaves Lansdown, Susannah Streeter, said: "Inflation in the UK has taken another welcome step towards target, but interest rate cuts remain elusively distant. The drop was widely expected but was slightly less than forecast, with prices at the pumps offsetting a slowdown in food price hikes.

"Although consumer prices are heading in the right direction, it’s not just the headline rate which determines Bank of England action. Policymakers scan other data, and the snapshot of stubborn wage growth out this week continues to be a concern. Unemployment may have risen, but the labour market figures are considered unreliable, and more people out of work isn’t yet translating into a sharp slowdown in wage increases, as there’s still a fight for talent in big pockets of the economy."

Although analysts have noted that prices are dropping on some products, some have stated that a cut to the base rate could still be a long way off as confidence stagnates.

Head of financial analysis at AJ Bell, Danni Hewson, added: "We know stuff is costing less as the impact of all that post-pandemic supply chain disruption washes through the numbers. Just compare goods inflation of 0.8% with the 12.8% we were facing only twelve months ago.

"This print is unlikely to persuade Bank of England policy makers, who just a couple of months ago were voting for further hikes, that the time is now right to start to cut. Andrew Bailey might be making positive noises about the pieces of the economic puzzle falling into place for a change in policy, but markets are far from convinced. Looking at the numbers after the inflation print was released, expectation of a June cut has fallen back significantly and more than 50% now think even August will be too soon."



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