Full story: UK inflation falls to 3.2%, the lowest level since September 2021
Richard Partington
The UKâs annual inflation rate fell in March for a second consecutive month, dropping to 3.2% â the lowest level since September 2021 â easing pressure on households amid the cost of living crisis.
Figures from the Office for National Statistics (ONS) show inflation as measured by the consumer prices index continued to fall from 3.4% in February. City economists had forecast a reading of 3.1%.
A reduction in the rate of inflation does not mean that prices are falling, just that they are rising more slowly. The last time inflation was lower was in September 2021, when it was 3.1%.
It comes as the Bank of England considers the timing of a first cut in interest rates after ramping up borrowing costs to the highest level since the 2008 financial crisis in response to soaring inflation. The measure for the annual increase in living costs reached a 41-year high of 11.1% in October 2022 after the Covid pandemic and Russiaâs invasion of Ukraine.
Key events
KPMG: Inflation could soon return to target, but risks remain
Marchâs drop in inflation, to 3.2%, suggests CPI is on track to soon return to the UKâs official 2% target (partly because energy bills fell in April).
But there are risks to the inflation outlook, such as the danger of a spike in oil prices if turmoil in the Middle East escalates.
Yael Selfin, chief economist at KPMG UK, explains:
âThe overall outlook for inflation remains broadly positive, however there are several risks which could cause a setback. Oil prices have rallied over the past month which has led to an increase in prices at the pump for consumers. Also, the hike in the National Living Wage could potentially contribute to persistence in services inflation which remains elevated.
âTodayâs data are unlikely to move the needle for the Bank of England. We expect inflation to return to target later this spring, which raises the prospect of interest rate cuts from June onwards.
ONS Chief Economist Grant Fitzner says:
âInflation eased slightly in March to its lowest annual rate for two and a half years.
âOnce again, food prices were the main reason for the fall, with prices rising by less than we saw a year ago.
âSimilarly to last month, we saw a partial offset from rising fuel prices.â
Full story: UK inflation falls to 3.2%, the lowest level since September 2021
Richard Partington
The UKâs annual inflation rate fell in March for a second consecutive month, dropping to 3.2% â the lowest level since September 2021 â easing pressure on households amid the cost of living crisis.
Figures from the Office for National Statistics (ONS) show inflation as measured by the consumer prices index continued to fall from 3.4% in February. City economists had forecast a reading of 3.1%.
A reduction in the rate of inflation does not mean that prices are falling, just that they are rising more slowly. The last time inflation was lower was in September 2021, when it was 3.1%.
It comes as the Bank of England considers the timing of a first cut in interest rates after ramping up borrowing costs to the highest level since the 2008 financial crisis in response to soaring inflation. The measure for the annual increase in living costs reached a 41-year high of 11.1% in October 2022 after the Covid pandemic and Russiaâs invasion of Ukraine.
Motor fuel prices ticked up in March
The price of petrol rose by 2.6p per litre in March, todayâs inflation report shows, to an average of 144.8p.
Thatâs still lower than a year ago, when it was 146.8p.
Diesel prices rose by 2.8p per litre in March to 154.1 pence per litre, down from 166.5p per litre in March 2023.
These movements resulted in overall motor fuel prices falling by 3.7% in the year to March 2024, compared with a fall of 6.5% in February.
Food inflation lowest since November 2021
Skimming through the UK inflation report, we can see that food inflation fell to its lowest level in almost two and a half years.
Prices for food and non-alcoholic beverages rose by 4.0% in the year to March 2024, down from 5.0% to February. The March figure is the lowest annual rate since November 2021, the ONS reports.
Inflation bread and cereals, and for meat, both eased.
The ONS explains:
Prices for bread and cereals rose by 0.2% on the month, compared with a rise of 2.2% a year ago, resulting in an annual rate in March 2024 of 4.0% â the lowest since January 2022. Prices of some bakery products, such as chocolate biscuits and crumpets, fell between February and March 2024 but rose between the same period a year ago.
Meat prices fell by 0.5% between February and March this year, compared with a rise of 1.4% a year ago.
This resulted in an annual rate of 3.1% in the year to March 2024, the lowest rate since November 2021. The main downward effect behind the easing in the rate came from pork products.
This chart shows how UK inflation has fallen back from its surge in 2022:
Core inflation drops to 4.2%
Core UK inflation has also fallen.
The ONS reports that CPI (excluding energy, food, alcohol and tobacco) rose by 4.2% in the 12 months to March 2024, down from 4.5% in February.
Goods price inflation fell to just 0.8%, from 1.1%.
But services inflation was higher â it only eased slightly from 6.1% to 6.0%.
Food prices pushed inflation down
The largest downward contribution to the monthly change in UK inflation came from food, with prices rising by less than a year ago, the Office for National Statistics says.
But petrol and diesel prices had an upward impact â motor fuels prices rose in March this year but fell a year ago.
UK INFLATION REPORT RELEASED
Newsflash: UK inflation has fallen to its lowest level in two and a half years, as price pressures continue to ease.
The consumer prices index has dropped to 3.2% in March, the lowest since September 2021, down from 3.4% in February.
Thatâs slightly higher than City economists expected (theyâd pencilled in a drop to 3.1%).
It brings inflation further towards the UKâs 2% target, and away from the 40-year peak over 11% in autumn 2022.
But although inflation has fallen, prices are still rising compared with last year â just at a slower rate.
It means real wages are still rising, as regular pay grew by 6% per year in the three months to February.
Economists expect a further decline in inflation in April, with potential to fall below the Bankâs 2% target after a sharp drop in household gas and electricity bills to the lowest level for two years.
Hunt raises possibility of more tax cuts before general election
Chancellor Jeremy Hunt has raised the possibility of further tax cuts before the next general election.
Speaking to the Financial Times, Hunt said the government would like to cut taxes in an autumn fiscal event âif we canâ.
He also cautioned, though, that itâs too soon to know if that will be possible, while acting in a fiscally responsible way.
Hunt argued that people would feel the economy had âturned a corner later this yearâ, citing market forecast that the Bank of England would cut interest rates this summer or autumn.
The chancellor explained:
âAs we move through the year towards the autumn, some of the changes in economic policy, including lower taxes, will be felt in peopleâs pockets â and thatâs clearly something that is significant for us.â
Hunt didnât leave himself much headroom for further tax cuts in Marchâs budget, when he announced a second cut to national insurance rates.
But this month, we have ticked into a new financial year â which gives the chancellor more time to hit his fiscal rule of getting debt/GDP falling in five yearâs timeâ¦..
Introduction: UK inflation expected to cool to two-and-a-half-year low
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain may take another step out of its cost of living crisis today, when the latest inflation report is released at 7am.
Economists are hopeful it will show inflation fell again in March. The consumer prices index is forecast to drop to around 3.1%, down from 3.4% in February, showing prices rose at a slower pace.
That would pull inflation down to its lowest since September 2021 (when CPI was also 3.1%), before Russiaâs invasion of Ukraine the following year sent food and energy prices spiking.
A slowing in price rises would help struggling households. Yesterday, though, the IMF warned that living standards will not improve this year.
Growth per head â one of the key measures of living standards â in Britain is expected to remain flat this year, after a 0.3% drop in 2023.
The Bank of England is looking for signs that services inflation has weakened, as it weighs up when it can start lowering UK interest rates from their currrent 16-year high.
And Rishi Sunak will be hoping for a drop in inflation that allows the Bank to start cutting rates before the next election.
Last night, BoE governor Andrew Bailey expressed confidence the UK was on its way to lower rates despite the turmoil in the Middle East.
Interviewed in Washington, at the IMF/World Bank annual meeting, Bailey said the UK was âdisinflating at full employmentâ.
The governor said:
âThere is strong evidence the process is working its way through. Our judgement on interest rates is how much do we need to see before we are confident of the processâ.
The financial markets have been rattled in recent days by fears that inflation in America is stickier than hoped.
Last night, Federal Reserve chair Jerome Powell conceded it is likely to take âlonger than expectedâ for inflation to return to the central bankâs 2%, allowing cuts to US interest rates.
The agenda
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7am BST: UK CPI inflation report for March
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7am BST: UK producer price inflation report for March
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9.30am BST: UK house price and rental costs data
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10am BST: Eurozone inflation report for March (final estimate)
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2pm BST: IMF to release its latest Fiscal Monitor report