The UK’s inflation rate dropped more than expected in March, offering brief respite to households and businesses grappling with the cost-of-living crisis.
Official figures released by the Office for National Statistics (ONS) on Tuesday show that Consumer Price Index (CPI) inflation fell to 2.6% in the year to March, down from 2.8% in February. The decline was largely driven by falling petrol prices and lower costs in recreation and culture.
The average price of petrol fell by 1.6p per litre between February and March, reaching 137.5p per litre. Prices for toys, games, and hobbies also dipped sharply, contributing to the downward trend. However, the inflation respite may be short-lived.
Analysts warn that inflation could rise again in April due to increased household bills and business costs, particularly for gas, electricity, and water.
Michael Saunders, senior advisor at Oxford Economics and former Bank of England policymaker, predicts April’s inflation figure could jump to around 3%.
Speaking to BBC Radio 4’s Today programme, he also warned that the UK could feel the ripple effects of Donald Trump’s renewed trade wars, with slower economic growth, weaker investment, and higher unemployment on the horizon.
“We may get a diversion of cheap exports which might have otherwise gone to the US, will start to come to Europe and the UK,” Saunders said. “Perhaps not as high as the Bank of England had feared a few months ago, but the economy will be weaker.”
The ONS data also showed that wages continue to outpace inflation, with public sector pay rises averaging 5.9%, significantly higher than those in the private sector. While this could help ease the burden on households, it also complicates the Bank of England’s decision on whether to cut interest rates from the current 4.5%.
Sonja Skelton, managing director of West Special Fasteners in Derbyshire, says her business is feeling the pressure from both wage hikes and rising material costs.
“It’s getting higher and higher,” she said, referencing the latest National Insurance increase, which cost her company over £60,000.
Her firm, which supplies specialist fasteners for offshore and defence projects, has seen the cost of key materials like Hastelloy C-276 jump from £30 to £50 per kilo in just five years.
As a high-energy business, she said soaring electricity prices have also taken a toll, and passing on costs to customers may become inevitable. “We’re trying to improve all our processes to claw some of that money back,” she added.
Economists suggest that if inflation continues to drop, it could bolster calls for an interest rate cut in the coming months.
“With the jobs market weakening and real tariff threats still in play, any downward pressure on inflation will be hailed,” said Lindsay James, investment strategist at Quilter. However, she warned that the inflation outlook remains uncertain amid global volatility.
Chancellor Rachel Reeves welcomed the news, calling the fall in inflation “encouraging,” but acknowledged that “many families are still struggling.”
Shadow chancellor Mel Stride, however, blamed government policy for keeping inflation above the 2% target, accusing Reeves of “reckless union payouts, tax hikes and borrowing.”
Liberal Democrat Treasury spokesperson Daisy Cooper urged the government to focus on trade deals with European and Commonwealth partners, warning that another “hammer blow” from Trump’s trade war could deepen the crisis for struggling households.
