Inflation drops to 2.5% in March

The Consumer Prices Index, released today by the ONS, showed that the 12-month rate was 2.5% in March 2018, down from 2.7% in February 2018.

Related topics:  Finance News
Amy Loddington
18th April 2018
decline graph chart down decrease drop

Since reaching a recent high of 2.8% towards the end of 2017, the rate has fallen back to its lowest since March 2017.

Leila Butt, senior economist at Prudential UK, commented:

“UK inflation is expected to remain above the Bank of England’s 2 per cent target this year, mainly because of some persistence in the lagged effects of Sterling’s previous decline on components of the consumer basket. Although we expect the BoE to raise its official policy rate by 25bps this year, the timing of this will likely be pushed back until August, given today’s inflation print. This rate hike does not signal the onset of a conventional tightening cycle.”

Ben Brettell, Senior Economist, Hargreaves Lansdown:

"UK inflation fell unexpectedly to 2.5% in the year to March, its lowest level in a year, and down from 2.7% in February. The slowdown was largely caused by clothing, tobacco and alcohol prices, which increased more slowly in March than they did a year ago.

"Falling inflation comes as further good news for cash-strapped households, after a prolonged spell of above-target inflation combined with anaemic wage growth. Yesterday numbers from the ONS showed pay growth accelerated to 2.8%.

"Sterling fell sharply on the news, losing more than half a cent against the dollar. Traders had been betting on an interest rate rise next month from the Bank of England, and while this still looks the most likely outcome, the absence of inflationary pressure lessens the onus on the Bank to act immediately.

"The interplay between wages and prices will be interesting over the coming months. Inflation looks to be falling back as predicted, but with wages picking up and unemployment still falling, it’s possible this tightness in the labour market could eventually push inflation back up. Higher wages mean more money chasing the same amount of goods and services, which could lead to higher prices. At the same time firms might choose to pass on higher staff costs to the end consumer. It’s this wage-price spiral which underlines the case for higher interest rates. Remember the Bank of England is targeting inflation in two years’ time, not today.

"At the same time the Bank would dearly love some more firepower to counter the next economic downturn, whenever that may be. Higher rates now will mean scope for a loosening of policy should the economy take a turn for the worse."

More like this
Latest from Property Reporter
Latest from Protection Reporter
CLOSE
Subscribe
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.