UK inflation dropped to 2.6 per cent in March, according to official figures released today — a steeper fall than forecast.
While the slowdown offers relief for households, it leaves the Bank of England and Labour government still grappling with how to hit and hold the elusive two per cent target.
The Consumer Prices Index (CPI) dropped to 2.6 per cent in March, coming in below City expectations of 2.7 per cent and marking the third consecutive monthly decline.
Falling costs for food, clothing and fuel were key factors behind the slowdown in inflation, according to the ONS.
The latest figure follows a reading of 2.8 per cent in February and three per cent in January, reflecting a broader easing in price pressures across the economy.
However, economists caution that inflation could pick up again in April as millions of households face higher council tax bills and rising utility costs — posing fresh challenges for policymakers.
Inflation fell more than expected in March, with the annual rate dropping to 2.6 per cent, according to figures released by the Office for National Statistics
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Dean Butler, Managing Director for Retail Direct at Standard Life, warned that while inflation fell to 2.6 per cent in March, the positive trend may not last.
He said: "This might be the last of the good news, as the impact of a tumultuous April kicks in next month – energy price rises and other bill increases combined with the impact of tariff turmoil all look set to make their mark."
Looking ahead, Butler noted that markets are still expecting an interest rate cut from the Bank of England in May, which would benefit borrowers but hurt savers: "Shopping around for the best rates remains crucial in order to avoid losing returns on savings."
He added that pensions remain one of the most tax-efficient savings options and encouraged those able to take on some risk to consider long-term investing.
He said: "You might be in a position to take advantage of the current lower market prices, though investing comes with no guarantees."
Markets are still anticipating a cut to the base rate at next month’s MPC meeting
PABefore US President Donald Trump reignited global trade tensions with a new wave of tariffs, economists had forecast UK inflation to rise from April, potentially peaking at around four per cent over the summer before easing next year.
However, the outlook has since shifted. Analysts now suggest that if China diverts goods originally intended for the US to European markets, it could push prices down — easing inflationary pressures in the UK and EU.
This added uncertainty is increasing calls for the Bank of England to act. Former deputy governor Sir Charlie Bean said the Bank should "set aside concerns about inflation" and consider a cut of at least 0.5 percentage points.
Inflation fell more than expected in March
ONS
His views were backed by former Prime Minister Gordon Brown, who urged global coordination among central banks in response to the growing economic instability.
With the Bank’s Monetary Policy Committee set to meet in May, markets are now factoring in a higher chance of an imminent rate cut.
Chancellor Rachel Reeves said: "Inflation falling for two months in a row, wages growing faster than prices, and positive growth figures are encouraging signs that our plan for change is working, but there is 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.
"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."
