UK inflation eased for the second consecutive month in March, driven primarily by falling fuel prices, according to official data released Wednesday. The decline could strengthen the case for the Bank of England to reduce interest rates as early as next month.
The Office for National Statistics reported that consumer prices increased by 2.6% in the 12 months to March, down from 2.8% in February. The drop was larger than expected, as most analysts had forecast a more modest dip to 2.7%.
Despite the decrease, inflation remains above the central bank’s 2% target. Economists expect a short-term rise above 3% in April, influenced by higher household energy costs and pressures from increased taxes and wages, which may be passed on to consumers.
Still, analysts believe the Bank of England could move ahead with cutting its key interest rate from the current 4.50%. A softer outlook for inflation is partly attributed to global trends, including the deflationary impact of U.S. President Donald Trump’s tariff policies, which have contributed to a decline in oil prices.
“An interest rate cut in May looks increasingly nailed on, and the path to more easing in the second half of the year is getting clearer,” said Luke Bartholomew, deputy chief economist at asset management firm Aberdeen.
Inflation has fallen significantly from the highs seen in recent years. After central banks hiked rates aggressively from pandemic-era lows, prices surged due to supply disruptions and geopolitical tensions such as the war in Ukraine, which pushed energy costs upward.
Now, as inflation retreats from its peak, central banks including the U.S. Federal Reserve have begun to ease rates. However, few experts anticipate a return to the ultra-low borrowing costs seen after the 2008 financial crisis and throughout the COVID-19 pandemic.
Since August, the Bank of England has trimmed its main interest rate three times, each by 0.25 percentage points, most recently in February, bringing it down from a 16-year high of 5.25%.
