Inflation set to ease further after dip in petrol prices

UK inflation is expected to have slowed down further last month before higher bills hit households in April.

The Office for National Statistics will publish the latest inflation data on Wednesday.

A consensus of economists has predicted that Consumer Prices Index (CPI) inflation will come in at 2.7% for March.

It would represent a second consecutive dip after inflation eased by more than expected to 2.8% in February on the back of lower clothing prices.

Nevertheless, the rate would still hold above the 2% target set by the Bank of England and the Government.

Distortions

Economists have suggested inflation is likely to ease due to lower motor fuel prices and distortions from last year’s early Easter.

Robert Wood, chief UK economist at Pantheon Macroeconomics, said: “Weekly motor fuels price data point to a 1.1% month-to-month fall, well below the 1.9% gain a year ago.

“A base effect from alcohol and tobacco prices a year ago should subtract another three basis points (0.03 percentage points) from headline CPI inflation.”

He added that the potential reduction in price rises would be “the calm before the storm of April price hikes, which should drive up headline inflation to 3.6%”.

The Bank of England has said inflation is likely to increase through this year and peak at around 3.7% later this summer.

Interest

The figure will be the last inflation reading that the Bank’s monetary policy committee will receive before they vote on whether to reduce interest rates – which currently sits at 4.5% – at their meeting next month.

However, Investec chief economist has said the rate-setters will consider the data in the context of any upcoming impact from US President Donald Trump’s tariff plans.

“The broader picture is that, to date, inflation is still disappointingly high in the UK and has retreated only slowly,” Mr Shaw said.

“That, of course, will only be one of the facts the MPC will be considering.

“The US tariff hikes have far-reaching consequences, which should ease the Bank of England’s worries about potential persistence in inflation, we think: weaker global demand is in store; energy prices have fallen substantially; and there is much more scope for lower import price pressures from China into the UK.”