Inflation hits low as meat costs reduce

UK inflation dropped to a fresh twoand-a-half year low in March on the back of a further easing in food prices, official figures have shown.

It slowed slightly less than expected last month, leading to City economists and investors trimming their forecasts for interest rate cuts this year. Official figures showed inflation dipped in March to its lowest level since September 2021. The Office for National Statistics (ONS) said Consumer Prices Index inflation stood at 3.2% in March, down from 3.4% in February.

It showed a slowdown in the rising cost of living, but was still above the 3.1% reading expected by a consensus of experts.

The data, which also showed higher than expected services inflation, came after the ONS revealed on Tuesday wage growth is also stronger-thanexpected, after a 6% rise in the three months to February. As a result, many City economists pushed back their forecasts for reductions to interest rates.

UK interest rates currently sit at a 15-year high of 5.25% after hikes by the Bank of England in an effort to quash inflation. Experts at ING and Pantheon Macroeconomics were among those who earlier this week predicted rate-setters at the Bank would start cuts in June, but said they now expect this to happen later in the summer, most likely at the Monetary Policy Committee’s August meeting. ING’s James Smith said the data “all but rules out a rate cut in May, and if we’re right that April’s data proves stickier than the Bank is expecting, then we think that would drastically reduce the chances of a cut in June, too”

Meanwhile, the often volatile financial markets were even more pessimistic, pricing in that rate cuts will only begin in November.

Prime Minister Rishi Sunak said the figures show “that after a tough couple of years, our economic plan is working”, although the reduction in inflation is primarily linked to interest rate rises by the Bank of England and changes to global price pressures. The drop was heavily linked to a slowdown in food price inflation, which was also its lowest for more than two years.

ONS chief economist Grant Fitzner said: “Once again, food prices were the main reason for the fall, with prices rising by less than we saw a year ago.”

The increased slowdown was partly driven by a fall in meat prices and lower rises for bread and cereals, the ONS said.