UK Inflation Rate Falls for the First Time in a Year

The cost of living has dropped for the first time in more than a year, easing the pressure on households and savers who have struggled to keep up with the rate of inflation.

According to the Office for National Statistics (ONS), UK consumer price inflation (CPI) fell to 2.5 per cent in March, down from 2.7 per cent in February.

The ONS said the biggest downward contribution to inflation came from clothing and footwear, mainly women’s clothing.

“Inflation fell to its lowest rate in a year, with women’s clothing prices rising slower than usual for the first time this year,” said ONS head of inflation Mike Hardie.

“Alcohol and tobacco also helped ease inflation pressures, with tobacco duty rises linked to the Budget not appearing this March, thanks to its new autumn billing.”

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The latest CPI figures bring the UK’s inflation rate closer to the Bank of England’s target of two per cent, and this has sparked speculation that the Bank of England’s Monetary Policy Committee (MPC) could raise the base rate as early as May.

Last November, the MPC increased the base rate from an all-time low of 0.25 per cent to 0.5 per cent, and experts now believe that another rate rise is imminent.

“The May MPC decision just became much tighter,” said Ed Monk, associate director for personal investing at Fidelity International.

“Inflation falling to 2.5 per cent – faster than anticipated – is good news for households but a headache for rate-setters at the Bank of England, who clearly would like to raise rates next month.

“For the Bank of England, it reduces pressure to raise rates. It’s probably also the case that it wants to create some headroom by raising rates now so that it has room to cut again if growth begins to slow.”

However, others have warned that savers and households are not out of the woods just yet.

“While households can breathe a sigh of relief thanks to another easing of inflationary pressures, family disposable income remains squeezed, particularly after the news that disposable income has fallen for the first time in six years,” said Alistair Wilson, head of retail platform strategy at Zurich.

“Even with the inevitable rate rise, it’s clear that more needs to be done to help make what little savings people can afford to put away, go that bit further.

“The new tax year presents the perfect opportunity to look at investments for the long-term, exploring different options such as a stocks and shares ISA or drip feeding into your pension. This way you’ll be protecting your savings, while building up a healthy sum over the years.”

Kathryn Gaw

Kathryn Gaw is a financial journalist based in Belfast, Northern Ireland. She has been writing about personal finance and investment trends for more than a decade, and her work has been featured in the Financial Times, City A.M., the Press Association, and The Irish Independent, among many other publications.