The Consumer Prices Index (CPI) measure of inflation slowed to 3.2% in the year to March 2024, down from 3.4% previously recorded.
The 3.2% inflation figure is the lowest since September 2021, providing further relief to households pressured by historically high prices, when inflation peaked at 11.1%.
Food prices are still rising, but by less than a year ago, which helped the inflation figure ease back down towards the 2% target. Here, prices for food and non-alcoholic beverages rose by 4% in the year, down from 5% in the year to February. The rate has now eased for the twelfth consecutive month from a recent high of 19.2% in March 2023.
Furniture and household goods prices also eased back by 0.9% – the largest annual fall since September 2016. Cooling clothing and footwear prices also helped inflation pull back.
Meanwhile, the largest upward contribution to CPI came from fuel prices, which have risen this year compared to a year ago.
However, according to the figures from the Office for National Statistics (ONS), core inflation, which excludes the more volatile energy, food, alcohol and tobacco prices, rose by 4.2% in the 12 months to March. This is down from 4.5% in February.
Overall, the CPI goods annual rate slowed from 1.1% to 0.8%, while the CPI services annual rate eased slightly from 6.1% to 6%.
‘Imminent rate cut diminishing by the day’
Derrick Dunne, CEO of YOU Asset Management, said the pace of inflation’s downward movement is “slowing to a grind”.
Dunne said: “The likelihood here is that with inflation persisting above target, and wage growth continuing to be unusually strong, the Bank of England isn’t getting the strong rate-cut signals it wants to see from the economy yet. With GDP also showing signs of recovery, hopes for imminent rate cuts are diminishing by the day.
“The simple fact is that the signals aren’t yet compelling enough for the MPC to say it’s time to begin lowering rates. This won’t come as good news for mortgage holders or prospective homebuyers, nor will it encourage markets to push on.”
Ruth Gregory, deputy chief UK economist at Capital Economics, said the “smaller-than-expected” fall in inflation means “the chances of interest rates being cut for the first time in June are now a bit slimmer”.
Gregory added: “As long as inflation continues to fall fast in the coming months as we expect, the bank may still feel comfortable cutting interest rates in June. However, the big risks are that inflation continues to ease more slowly or stalls as it has in the US and/or there is a big jump in energy prices triggered by tensions in the Middle East. That could prompt the bank to conclude that rates need to stay at 5.25% for longer.”
