As of March, the UK witnessed a significant deceleration in inflation, with figures falling to the lowest rate in over two years. Official data from the Office for National Statistics (ONS) reveals a drop to 3.2%, down from 3.4% in February, marking a crucial turning point in the nation's economic recovery post-COVID.
Despite the overall decrease, it's important to note that lower inflation does not imply a reduction in prices but indicates that prices are rising at a slower pace than before. The decrease in inflation is primarily attributed to slowing rises in food prices, particularly notable in meat and certain grocery items.
Food prices among those to decline
In detail, meat prices saw a decrease of 0.5% between February and March, significantly lower than the 1.4% rise observed a year prior. This reduction contributed to meat price inflation slowing further to 3.1% for the year to March, the lowest rate since November 2021. The cost of pork, in particular, has been a key driver behind the decrease in meat prices.
Additionally, prices for other household staples such as crumpets and chocolate biscuits have also fallen. However, not all items followed this trend, with petrol and diesel prices experiencing an increase.
Furniture and household goods, including cleaning products, saw a price decline of 0.9% over the past year. This drop is reflective of a broader trend of decreased demand for certain goods, particularly those that had seen price spikes during the peak pandemic period.
Reasons behind the decrease
The decline in inflation has been largely influenced by a mix of factors, including reduced demand post-COVID and geopolitical tensions affecting global markets. Notably, the aftermath of the pandemic saw a sharp increase in demand as production struggled to keep pace. Furthermore, the Russia-Ukraine conflict disrupted global supplies of oil, gas, and grain, pushing prices upwards.
At its peak in late 2022, inflation soared to 11.1%, exacerbated by soaring food and energy bills, with food and non-alcoholic drinks inflation reaching nearly 20% last year - the highest since the 1970s.
The Bank of England (BoE) is set to make its next interest rate decision on 9 May, continuing its policy of rate increases to temper inflation and achieve its 2% target.
High-interest rates have been used as a tool to curb spending and reduce demand for goods, helping to cool inflation. According to BoE Governor Andrew Bailey, the central bank is assessing the situation to determine when it might start cutting interest rates, which could be as early as June.
Chancellor Jeremy Hunt has described the latest figures as "welcome news," citing recent tax cuts and stating that individuals should soon start to feel the financial relief.
As the UK prepares for the next set of inflation figures this month, which are expected to show a further decline due to a lower energy price cap, the economic outlook remains cautiously optimistic.
While the rate of inflation is in retreat, experts advise that the BoE will likely maintain a cautious approach to any rate cuts, ensuring the inflationary pressures are thoroughly subdued before making significant policy shifts.
Talk to us about your finances.