UK inflation rate drops again

Experts predict timing of Bank of England base rate cut

UK inflation rate drops again

The UK’s annual inflation rate has slowed once again, dropping to 3.2% in March from the previous month’s 3.4%, recording another two-and-a-half-year low.

Consumer price inflation (CPI) data published by the Office for National Statistics (ONS) on Wednesday showed that prices rose at the slowest rate last month since September 2021.

On a monthly basis, the CPI saw a rise of 0.6%, which is a drop from the 0.8% growth in the same month of the previous year.

“Inflation eased slightly in March to its lowest annual rate for two and a half year,” said Grant Fitzner, chief economist at the Office for National Statistics, commenting on the latest CPI figures.

“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.”

“A second drop in inflation in as many months is a much-needed sign of progress,” said Andy Mielczarek, founder and chief executive of a Chetwood Financial company SmartSave. “With inflation now at its lowest since mid-2021, consumers may feel like it’s the time for celebration, but we mustn’t get ahead of ourselves.

“The reality is that the economic climate is a long way from where it needs to be. Any drop is good news, but we mustn’t lose our perspective on how bad things have been.

“The 2% inflation target is inching closer, so it might not be long before the Bank of England cuts interest rates. So, now is the time for people to squeeze every penny out of the higher rates offered on their savings before they, too, start to diminish.”

Nicholas Mendes, head of marketing at independent mortgage broker John Charcol, believes that pressure will be on the Monetary Policy Committee (MPC) to implement at least two bank rate reductions in 2024, with the first coming by August at the latest.

“The MPC will want to avoid a bank rate reduction during a general election, which is being mooted for either October or November,” Mendes said. “The Bank of England is looking for signs that services inflation has weakened before it decides when it can start lowering UK interest rates from their current 16-year high.

“Financial markets are pricing in the first bank rate reduction in June, though there is an underlying concern that the MPC will wait for the Fed to make their move first. This is expected to happen in August, if not later, which could be disastrous for mortgage holders who may have to endure higher rates for longer than many deem necessary.”

Ben Thompson, deputy chief executive at Mortgage Advice Bureau, said a base rate cut is still firmly on the cards for the summer, especially following today’s inflation announcement.

“Despite some unrest in the market, mortgage rates have stabilised, and with spring arriving we expect to see more confidence from buyers and lenders heading into the summer,” he added. “Following a third consecutive month of growth in the number of new buyers, this inflation reading will offer another confidence boost.”

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