According to official figures, inflation has decreased to 2.6%, down from 2.8% i

According to official figures, inflation has decreased to 2.6%, down from 2.8% in February.

 However, experts caution that this decline may be short-lived, predicting a rise beginning in April due to escalating bills and increased business expenses. Grant Fitzner, chief economist at the Office for National Statistics (ONS), noted, "The only major offset came from a significant rise in clothing prices this month." The average petrol price dropped by 1.6 pence per litre from February to March, settling at 137.5 pence per litre.

 Additionally, the decline in inflation was influenced by a decrease in prices within the recreation and culture sector, particularly for toys, games, and hobbies. While prices are still on the rise, the pace of these increases has slowed compared to the peaks seen in recent years. Furthermore, wage growth surpasses inflation, with public sector salaries increasing at a faster rate than those in the private sector. ONS data released on Tuesday indicated an average wage increase of 5.9%. A line graph depicts the UK Consumer Price Index annual inflation rate from January 2016 to March 2025, illustrating fluctuations from a low of 0.3% in early 2016 to a peak of 11.1% in October 2022, before settling at 2.6% in March 2025. What's Driving Price Increases?: Michael Saunders, a senior advisor at Oxford Economics, anticipates that April's inflation rate will rise to approximately 3% due to higher gas, electricity, and water prices. 

He expressed on Radio 4's Today Programme that the repercussions of Trump's trade wars will also affect UK exports and investments. "We may see a shift in cheap exports, previously directed towards the US, now coming to Europe and the UK," he explained. "While it might not reach the levels previously feared by the Bank of England, the economy will likely weaken, with impacts on exports, investment, consumer spending, and a potential increase in unemployment." Saunders also noted that the trade war's effects could dampen global growth, leading to reduced oil prices and, consequently, lower petrol costs in the UK. Rising Costs for Businesses: Sonja Skelton, of West Special Fasteners, highlighted that staffing represents the largest expense for her company, which will increase with minimum wage hikes. The recent rise in National Insurance has already cost her over £60,000. 

"It's getting higher and higher," she stated, but expressed her willingness to pay, as she believes it will benefit the UK's infrastructure. Her firm, serving offshore defense and specialist construction sectors since 1999, employs over 65 people. "We're working to enhance efficiency to recoup some costs," she added, noting that if she cannot absorb rising expenses, product prices will need to increase. 

For instance, a specialized material, Hastelloy C-276, which was around £30 per kilo five years ago, has surged to approximately £50 per kilo now. Additionally, as a high energy consumer, her business has been significantly affected by rising energy costs. Working in engineering, she explained, has its ups and downs due to global dynamics, with conflicts impacting their operations. Interest Rate Outlook: With inflation easing, the Bank of England might feel pressured to cut its key interest rate, currently at 4.5%. The lowest vacancy rates in four years and anticipated economic pressures from Trump's tariffs might prompt such a decision during the next meeting. However, the Bank faces a dilemma with robust wage growth, which typically discourages rate cuts. Experts predict that inflation could approach the 2% target by 2026. The government will view the dip in inflation favorably, according to Lindsay James, an investment strategist at Quilter. "Given the weakening job market and ongoing tariff threats, any downward pressure on inflation is positive news," she stated. Nonetheless, she emphasized the uncertain inflation forecast due to a volatile global economy and rising National Insurance, which is expected to push prices higher from April. Chancellor Rachel Reeves described the inflation drop as "encouraging," while acknowledging the ongoing struggles many families face regarding living costs. "This is a challenging time amidst a changing world," she remarked. Conversely, shadow chancellor Mel Stride accused Reeves of exacerbating living costs through "reckless union payouts, tax hikes, and a borrowing spree." He attributed the inflation rate remaining above the 2% target to her policies. Liberal Democrat Treasury spokesperson Daisy Cooper warned that those already grappling with the high cost of living would be unable to withstand further financial pressures, such as those from President Trump's global trade war. She urged the government to pursue trade agreements with European and Commonwealth partners.
BBC