UK inflation slows less than expected

LONDON: Britain’s annual inflation rate fell less than expected last month, according to official data Wednesday that could cloud the outlook for interest rate cuts and cause more pain for the government.

The Consumer Prices Index dropped to 3.2 percent in March, the lowest level since September 2021, the Office for National Statistics (ONS) said.

Markets, however, had expected a rate of 3.1 percent in March.

Inflation rose 3.4 percent in the 12 months to February, the ONS added in a statement.

“Inflation eased slightly in March to its lowest annual rate for two-and-a-half years,” ONS chief economist Grant Fitzner said.

“Once again, food prices were the main reason for the fall, with prices rising by less than we saw a year ago.

“Similarly to last month, we saw a partial offset from rising fuel prices,” he added in the ONS release.

Finance minister Jeremy Hunt described the latest drop as “welcome news”.

But inflation remains well above the Bank of England’s two-percent target, as millions of Britons wait to see when it will start cutting interest rates to ease a cost-of-living crisis.

Ruth Gregory, deputy chief UK economist at Capital Economics, said the smaller-than-expected fall “raises the risk that inflation will follow the trend in the US and soon stall.

“The chances of interest rates being cut for the first time in June are now a bit slimmer,” she noted.

Other analysts said a June cut remained a strong possibility.

“Today’s data are unlikely to move the needle for the Bank of England,” said Yael Selfin, chief economist at KPMG UK.

“The overall outlook for inflation remains broadly positive, however there are several risks which could cause a setback.

“Oil prices have rallied over the past month which has led to an increase in prices at the pump for consumers,” she added.

The Conservative government, led by Prime Minister Rishi Sunak, is meanwhile banking on inflation falling as it trails badly in polls ahead of a general election expected this year.