- By Lora Jones
- Business reporter, BBC News
Image source, Getty Images
Inflation has fallen to its lowest level in two-and-a-half years, driven largely by slowing food price rises.
The cost of some items including meat, crumpets, chocolate biscuits, furniture and household items fell. However petrol and diesel prices rose.
Lower inflation does not mean prices overall are coming down, they are just rising less quickly.
While the overall rate of inflation has come down, goods in the shops are still much more expensive than they were two years ago.
Meat prices, driven by a drop in the cost of pork, fell by 0.5% between February and March, compared with a rise of 1.4% a year ago.
Prices for furniture and household goods like cleaning products also fell by 0.9% in the year to March.
Soaring food and energy bills have been the main causes behind the UK’s high inflation in recent years.
Inflation has been falling gradually since it peaked at 11.1% in late 2022, driven by the aftermath of Covid when demand for goods rose sharply after factories struggled to cope with the rise in demand
Oil and gas were also in greater demand after the pandemic, and prices surged again when Russia invaded Ukraine, cutting global supplies. The conflict also reduced the amount of grain for sale, pushing up food prices.
It led to inflation for food and non-alcoholic drinks hitting almost 20% ast year – the highest level seen since the 1970s.
Grant Fitzner, chief economist for the ONS, said lower costs were off-set by rising fuel prices last month.
The average price of petrol rose by 2.6p per litre between February and March to stand at £1.45. Diesel prices also rose by 2.8p per litre to £1.54.
While the overall rate of inflation in March was slightly higher than economists expected, Chancellor Jeremy Hunt described the figures as “welcome news”.
He said that due to lower inflation and the government’s recent cut in National Insurance for the employed and self-employed, which came into force on 6 April, “people should start to feel the difference as well as see it in their pay cheques”.
However, Rachel Reeves, Labour’s shadow chancellor said working people would still feel worse off.
“Prices are still high in the shops, monthly mortgage bills are going up and inflation is still higher than the Bank of England’s target,” she said.
Liberal Democrat Treasury spokesperson Sarah Olney said: “Nobody will notice this in their pockets. By patting themselves on the back for this record, Rishi Sunak and Jeremy Hunt have proved just how out of touch they are.”
The latest inflation data comes ahead of the Bank of England’s next decision on interest rates on 9 May. The UK’s central bank has been increasing interest rates in a bid to slow price rises and bring inflation back to its 2% target.
The theory is that if you make borrowing more expensive, people have less money to spend, or may choose to save more as saving rates go up. This in turn reduces demand for goods and helps cool inflation.
But there are many factors the Bank’s Monetary Policy Committee will take into account.
Core inflation, for example, which strips out the effect of more volatile energy and food prices, also eased to 4.2% in March.
It was still slightly higher than economists expected, and the Bank will also keep a keen eye on things like employment figures, wages and services inflation, which looks at price rises seen across hospitality to hairdressing, and stood at 6%, down from 6.1% in February.
On Tuesday, Bank governor Andrew Bailey said the question was how much more evidence was necessary before starting to cut interest rates in the coming months.
Consumer prices in the US rose faster than expected last month, with the UK inflation rate now sitting below that of the United States for the first time since early 2022.
Ian Stewart, chief economist at Deloitte, said that although inflation may be in “retreat” in the UK,”the Bank of England cannot yet be sure that it is beaten”.
With people’s wage growth remaining above forecasts, “and the economy reviving, the Bank will be in no hurry to cut interest rates”, he said.
Yael Selfin, chief economist at KPMG UK, said that Wednesday’s figures were “unlikely” to move the needle for the Bank of England.
David Hollingworth from broker London and Country suggested any homeowners due to renew their mortgage hoping for further cuts may find themselves in for a long wait, “with uncertainty still in the air”.
Ms Selfin also pointed out there were still several risks which may cause a setback for investors, businesses and consumers.
“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.”
And there is still a question mark over how resilient households in the UK are, having been faced with high costs and some being left with unaffordable debts.
On Wednesday, separate ONS figures showed that private rents had increased by 9.2% in the 12 months to March, now averaging £1,285 in England.
Next month’s overall inflation figure looking back at April is expected to show a bigger drop as the lower energy price cap is taken into account, even as households’ direct debits remain higher.
How can I save money on my food shop?
- Look at your cupboards so you know what you have already
- Head to the reduced section first to see if it has anything you need
- Buy things close to their best before date which will be cheaper and use your freezer
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
