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The
Office for National Statistics said consumer prices rose by 2.6%
in the year to March, down from 2.8% the previous month. The
decline was bigger than anticipated, with most economists
predicting a more modest decline to 2.7%.
However, inflation remains above the Bank of England's target of
2% and is set to rise to over 3% in April due to a confluence of
factors, including higher domestic energy bills as well as the
potential impact of higher taxes and labor costs for businesses,
which are likely to pass some costs on to customers.
Still, most economists think the bank can lower its main
interest rate from 4.50%, as the peak in inflation is likely to
be lower than previously thought, not least because U.S.
President Donald Trump's tariff policies are likely to depress
global growth and hence prices. One impact of Trump's tariff
plans has been lower oil prices, which will have a downward
effect on inflation.
“An interest rate cut in May looks increasingly nailed on, and
the path to more easing in the second half of the year is
getting clearer,” said Luke Bartholomew, deputy chief economist
at asset management firm Aberdeen.
Inflation is way down from levels seen a couple of years ago,
partly because central banks have dramatically increased
borrowing costs from near zero during the coronavirus pandemic.
Prices then began to shoot up, first as a result of supply chain
issues and later because of Russia’s full-scale invasion of
Ukraine, which pushed energy costs higher.
As inflation rates have declined from multidecade highs, central
banks, including the U.S. Federal Reserve have started cutting
interest rates, though few, if any, economists think that rates
will fall back to the super-low levels that persisted in the
years after the global financial crisis of 2008-2009 and during
the pandemic.
The Bank of England has lowered its main rate from a 16-year
high of 5.25% by a quarter of a percentage on three occasions
since last August, most recently in February,
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