Surprise drop in inflation sparks calls for further interest rate cuts

It has sparked calls for the Bank to further cut the base interest rate from 4.5 per cent, however economists warned that inflation is likely to shoot up in April over a raft of consumer bill increases.

The Office for National Statistics (ONS) explained that the rate of Consumer Prices Index (CPI) inflation eased to 2.6 per cent for March, from 2.8 per cent in February.

It was a steeper fall than predicted by economists, who had expected a reading of 2.7 per cent for March, and marks the lowest rate since December.

ONS chief economist Grant Fitzner said: “Inflation eased again in March, driven by a variety of factors including falling fuel prices and unchanged food costs compared with the price rises we saw this time last year.

“The only significant offset came from the price of clothes, which rose strongly this month, following the unusual decrease in February.”

Motor fuel prices were 5.3 per cent lower for the month, marking the biggest decline for four months.

It was partly driven by a fall in the average price of petrol by 1.6p per litre between February and March to stand at 137.5p per litre. It was down from 144.8p per litre in March 2024.

Ms Reeves said: “Inflation falling for two months in a row, wages growing faster than prices, and positive growth figures are encouraging signs that our Plan for Change is working, but there is more to be done.

“I know many families are still struggling with the cost of living and this is an anxious time because of a changing world.

“That is why the Government has boosted pay for three million people by increasing the minimum wage, frozen fuel duty and begun rolling out free breakfast clubs in primary schools.”

It comes as campaigners called on the Bank to cut the base interest rate from 4.5 per cent.

The Trades Union Congress Paul Nowak said: “With an increasingly unpredictable global economy, the case for further interest rate cuts has become all the more urgent.

“Lower rates will mean more money in working people’s pockets to spend on our high streets, and more money for firms so that they feel confident to invest.

“The Bank needs to act at the start of May to ease the pressures on households and firms and support growth.”

However, economists have predicted that inflation will shoot higher in April after a raft of consumer bill increases – such as energy and water prices – as well as the potential impact of higher taxes and labour costs for businesses, which are likely to pass some costs on to customers.

Council tax rose in April across the country, as well as the national minimum wage and national insurance contributions for employers.

At the same time, new house price figures from the ONS found the annual growth rate at 5.4 per cent.