LONDON, 17 April. - (ANA) - The United Kingdom's (UK) annual inflation rate fell by less than expected in March to 3.2%, complicating the timing of a first Bank of England interest rate cut.

 

Figures from the Office for National Statistics (ONS) show inflation continued to fall from 3.4% in February to reach the lowest level since September 2021, as food prices rose at a slower pace than a year earlier. City economists and the Bank had forecast a larger decline to 3.1%.

 

A reduction in the rate of inflation does not mean that prices are falling, just that they are rising more slowly.

 

The ONS said cooling inflation in food and drink prices contributed most to the decline, after a fall in the prices of bakery products including chocolate biscuits and crumpets. However, this was offset by rising fuel prices and stubbornly high inflation in services prices.

 

City investors are increasingly betting that persistently high inflation could force Threadneedle Street to hold off from cutting interest rates until later this year.

 

Financial markets reacted to the March figures by trimming bets for an imminent reduction in borrowing costs, with the money markets now pricing in the first quarter-point rate cut in September or November. A matter of weeks ago investors had been expecting a first cut in June, from the current level of 5.25%.

 

Rachel Reeves, the shadow chancellor, said the latest figures showed households remained 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.

 

The chancellor, Jeremy Hunt, said: “The plan is working: inflation is falling faster than expected, down from over 11% to 3.2%, the lowest level in nearly two and a half years, helping people’s money go further.”

 

The latest snapshot from the ONS showed core inflation – which excludes energy, food and tobacco prices – and is closely monitored by the Bank – slowed to 4.2% from 4.5% in February, but remained higher than forecast by City economists and the Bank.

 

Services inflation, which the Bank also watches closely, eased slightly to 6% from 6.1% a month earlier, but was also marginally higher than predicted.

 

Economists said the March inflation figures are, though, unlikely to have a significant influence on the Bank. Most expect a further decline in inflation in April, with the potential to fall below the Bank’s 2% target after a sharp drop in household gas and electricity bills to the lowest level for two years.

 

“Today’s data is 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,” said Yael Selfin, the chief economist at KPMG UK.

 

Suren Thiru, the economics director at the Institute of Chartered Accountants in England and Wales, said: “A landmark decline in inflation is locked in for April, as lower energy bills following the reduction in Ofgem’s energy price cap will have almost certainly pulled the headline rate below the Bank of England’s 2% target.

 

“Though this [March] inflation fall won’t be sufficient to drive a cut in interest rates next month, this outturn may persuade more rate setters to vote to loosen policy, providing a clear signal that rate cuts are on the horizon.”   - (ANA) -

 

AB/ANA/17 April 2024 - - -