UK inflation falls to 2.5%, its lowest level for a year

UK inflation unexpectedly fell last month to its lowest level in a year, casting doubt over whether the Bank of England will raise interest rates next month.

The consumer price index (CPI) dropped to 2.5% in March, down from 2.7% in February, according to the Office for National Statistics. Economists had expected the annual rate of growth in prices to remain unchanged.

Sterling fell by a cent against the dollar on foreign exchanges, taking it back below $1.42, as economists said the bigger-than-expected fall in the cost of living weakened the case for an interest rate rise next month.

UK inflation has fallen to 2.5%, a one-year low

Percent

CPI inflation

-1

0

1

2

3

4

5%

Mar 08

09

10

11

12

13

14

15

16

17

18

Guardian Graphic | Source: ONS

However, most economists still expect the Bank of England, which had been forecasting CPI to average 2.9% over the first three months of 2018, to raise rates in May.

Women’s clothing prices rose more slowly than usual for this time of year, while alcohol and tobacco also helped to ease the pressure on inflation. The ONS said moving the budget to the autumn meant there were no changes to tobacco duties at this time of year as can typically be the case.

Growth in the price of goods leaving factories also continued to slow, which the ONS attributed to a smaller increase in the price of food products.

Meanwhile, the ONS said house prices in London experienced the first annual fall since September 2009. Prices dropped by 1% in the year to February.