UK Inflation Slows To 2.6%

(RTTNews) - UK consumer price inflation weakened more than expected to a three-month low in March ahead of an increase in energy bills in April, the Office for National Statistics said on Wednesday.

Consumer prices registered an annual growth of 2.6 percent, slower than the 2.8 percent increase in February. Prices were forecast to climb 2.7 percent.

Core inflation that excludes prices of energy, food, alcohol and tobacco, weakened to 3.4 percent, in line with expectations, from 3.5 percent in the previous month.

The annual growth in goods prices eased to 0.6 percent from 0.8 percent. Likewise, services inflation posted 4.7 percent, down from 5.0 percent in February.

The largest downward contributions to annual inflation came from recreation and culture, and motor fuels.

On a monthly basis, the consumer price index rose 0.3 percent in March compared with an increase of 0.4 percent in February. Inflation was seen unchanged at 0.4 percent.

The fall in CPI inflation in March won't be sustained for long, with inflation set to rise to around 3.5 percent in the coming months, Capital Economics economist Ruth Gregory said.

But a weak economy will quash inflation eventually and that the tariff shock has tilted the balance of risks towards lower inflation and faster falls in interest rates, the economist noted.

ING economist James Smith said higher contribution from household energy and water bills will take inflation to 3.5 percent or above in the second half of the year.

More benign services inflation, if it materializes, is unlikely to be a catalyst for the Bank of England to speed up the pace of cuts but it would help cement one rate cut per quarter for the rest of 2025 and into 2026, Smith added.

At the March meeting, the BoE had maintained its benchmark rate at 4.5 percent, which was the lowest level since June 2023. The bank had reduced the rate by 25 basis points in February after two such reductions last year.

Another report from the ONS today showed that average house prices grew 5.4 percent from a year ago in February, which was faster than the 4.8 percent rise in January.