Money Wellness
category iconcost of living
calendar icon17 Apr 2024

UK inflation falls to 3.2%, but not as much as expected

The UK’s annual inflation rate fell by less than expected in March to 3.2%, which will complicate the timing of a first Bank of England interest rate cut. The rate consumer prices have been rising at fell to 3.2% in the year to March, down from 3.4% in February, according to official figures from the Office for National Statistics (ONS).

Inflation has been gradually falling since it peaked at 11.1% in late 2022, but lower inflation doesn’t necessarily mean prices of goods are falling too. Instead, prices are rising less quickly.

 What’s inflation?

Inflation is a measure of how prices of goods and services are changing in the UK.  It can have a big impact on people’s household finances.

Each month the ONS publishes the latest annual inflation rate, which measures the change in price of regularly purchases products – known as the basket of goods and services – compared with the same time the previous year.

Some goods contribute more to the overall inflation rate than others – if some products see a larger increase in prices, while others stay more stable, then inflation would be driven by the changing prices in that spending category.

So, how the headline inflation rate affects your household depends on which products you tend to spend your money on.

 Food prices eased between February and March

 The ONS said cooling inflation in food and drink prices contributed the most to falling inflation as the prices of some bakery products, including chocolate biscuits and crumpets, fell between February and March but rose between the same period a year ago.

 Meat prices also fell, by 0.5% between February and March. This time a year ago, it rose 1.4%.

 Overall, food prices increased by 4% this period, which is down from a peak of 19.1% in March 2023 when food and drink inflation reached the highest level since the late 1970s. The latest official figures also showed the prices of furniture and household goods like cleaning products fell by 0.9% in the year to March.

Interest rates

 The latest inflation data comes just ahead of the Bank of England's next decision on interest rates on 9 May. The UK's central bank has been increasing interest rates in a bid to slow price rises and bring inflation back to its 2% target.

The reason for cutting interest rates is that if you make borrowing more expensive, people have less money to spend, or may choose to save more as saving rates go up. This reduces demand for goods and helps cool inflation. But there are many factors the Bank will take into account when deciding whether to cut interest rates.

 Core inflation – which doesn’t count energy, food and tobacco prices – also slowed to 4.2% from 4.5% in February. But this was still slightly higher than what was predicted by  economists. Services inflation, eased slightly to 6% from 6.1% a month earlier, ONS figures show.

 Ian Stewart, chief economist at Deloitte, said that while inflation is falling, "the Bank of England cannot yet be sure that it is beaten". With people's wage growth remaining above forecasts, "and the economy reviving, the Bank will be in no hurry to cut interest rates", he said.

 Economists also expect a further  fall in inflation in April, with the potential to fall below the Bank’s 2% target after a sharp drop in household gas and electricity bills to the lowest level for two years.

 Jeremy Hunt welcomes latest inflation figures

 While the overall rate of inflation in March was slightly higher than economists expected, Chancellor Jeremy Hunt described the figures as "welcome news".

 He said that due to lower inflation and the government's recent cut in National Insurance for the employed and self-employed, "people should start to feel the difference as well as see it in their pay cheques".

 However, Rachel Reeves, the shadow chancellor, said: “Conservative ministers will be hitting the airwaves today to tell the British people that they have never had it so good. However, after 14 years of economic failure under the Conservatives, working people are worse off.

“Prices are still high in the shops, monthly mortgage bills are going up and inflation is still higher than the Bank of England’s target.”

Avatar of Lydia Bell-Jones

Lydia Bell-Jones

With a background in banking, Lydia has been writing professionally for over five years. She is passionate about helping people improve their personal finances and has a particular interest in the connection between money and mental health.

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