Inflation eases in March amid looming Bank decision

Inflation remained stubbornly high at 2.6 per cent in March, official data has shown, leaving Bank of England policymakers with a difficult decision to make on interest rates early next month. The year-on-year increase in consumer price inflation (CPI) was lower than the 2.

7 per cent figure forecast in a Bloomberg poll of economists. The Office for National Statistics (ONS) said services inflation hit 4.7 per cent, which may unsettle policymakers despite a slight drop from the month before.



“Inflation eased again in March, driven by a variety of factors including falling fuel prices and unchanged food costs compared with the price rises we saw this time last year,” ONS chief economist Grant Fitzner said. The latest inflation data release by the ONS is the last the Bank’s rate-setters will see before they make a critical interest rate decision on May 8. The figure for March suggests that UK inflation may not fall to the Bank’s two per cent target this year.

Economists widely expect interest rates to be cut by 25 basis points at the next decision. The current rate set is 4.5 per cent.

Governor Andrew Bailey is leading the Bank’s “gradual and careful” approach to rate-cutting. Markets have priced in as many as four cuts this year as most economists believe President Trump’s sweeping tariffs are likely to have a deflationary effect on price growth. The likelihood of weakened demand, lower energy prices and cheaper goods flooding into the UK from major economies including China has prompted the consultancy Oxford Economics to revise its 2025 inflation rate down to three per cent.

Economists, including the rate-setter and Bank deputy governor Sarah Breeden, fear that higher costs along supply chains that spread throughout the world could in fact push up UK prices higher. Higher taxes introduced by Chancellor Rachel Reeves have also forced firms to raise prices higher than they would have otherwise liked to in order to maintain profit margins. Pay growth of 5.

9 per cent in February is also likely to weigh heavily on any decision the Bank makes next month. All eyes will also be on whether the Monetary Policy Committee revises its high inflation estimate for the year, which has inflation peaking at 3.75 per cent.

It is a high estimate when put next to the Office for Budget Responsibility (OBR)’s more modest estimate of 3.2 per cent..