Stabilising meals inflation and falling home costs each contributed to UK inflation coming down additional in March, resulting in renewed hopes that the Financial institution of England may lower charges quickly.
The UK year-on-year inflation report for March 2024 got here out on Wednesday morning, clocking in at 3.2%, based on the Workplace for Nationwide Statistics (ONS), marking a decline from February’s 3.4%.
Nonetheless, it was nonetheless above analyst estimates of three.1%, though the bottom quantity since September 2021.
Meals inflation slowing down was one of many largest contributors to the decline, coming all the way down to 4% from 5% within the earlier month.
Relating to meals and non-alcoholic drinks costs, the ONS mentioned: “Costs have been comparatively excessive however secure since early summer season 2023, rising by lower than 2% between Could 2023 and March 2024. This compares with a pointy rise of round 22% seen between March 2022 and Could 2023.”
Housing bills additionally stored falling, albeit at a barely slower price, at -1.6% in March, from -1.7% within the earlier month.
Resorts and eating places inflation additionally inched up at a slower price, at 5.8% from 6% in February. Equally, tradition and recreation costs grew extra slowly in March, coming in at 5.3%, from 5.4% in February.
Nonetheless, transport prices bounced again, advancing by 0.1% in March, following the 4 earlier months seeing declines. This was primarily on account of motor gasoline prices wanting up barely as properly.
Month-on-month inflation for March clocked in at 0.6%, which was the identical as February.
12 months-on-year core inflation, which doesn’t take meals and power costs into consideration on account of their inherent volatility, got here in at 4.2%, which was the bottom quantity since December 2021. Nonetheless, this was additionally somewhat increased than analyst expectations of 4.1%.
Might cooling UK inflation persuade the BoE to chop charges?
March’s significantly upbeat inflation report has led to extra hypothesis about whether or not the Financial institution of England (BoE) may probably come underneath extra strain to chop charges quickly, if inflation continues on this downward development.
Danni Hewson, head of monetary evaluation at AJ Bell, mentioned in an e-mail observe: “Inflation is transferring in the proper path and anybody who has wheeled a trolly round a grocery store over the previous few weeks can have seen that costs aren’t delivering these checkout shocks in the identical method they have been this time final 12 months.
“Subsequent month ought to look even higher because the falling power worth cap is lastly counted within the numbers, even when many households gained’t have seen a lot distinction to their outgoings as their direct debits stay elevated to repay excellent balances.
“However even on this set of figures there are a couple of troubling points, notably the stickiness of service sector inflation. This may very well be exacerbated by the rise within the Nationwide Dwelling Wage which is placing strain on many companies to hike costs once more to steadiness their books.
“This print is unlikely to steer Financial institution of England coverage makers, who simply a few months in the past have been voting for additional hikes, that the time is now proper to begin to lower. Andrew Bailey is likely to be making optimistic noises concerning the items of the financial puzzle falling into place for a change in coverage, however markets are removed from satisfied.
“Wanting on the numbers after the inflation print was launched, expectation of a June lower has fallen again considerably and greater than 50% now suppose even August might be too quickly.”
Nick Rees, foreign exchange market analyst at Monex, additionally commented on the figures and mentioned in an e-mail observe: “Whereas headline inflation continued its downward development in March, a smaller than anticipated fall reconfirms the message from yesterday’s pay knowledge, suggesting that the BoE ought to wait till August to start reducing charges.
“Granted, the small upside misses to each inflation and wage knowledge this week are unlikely to provide vital forecast revisions in subsequent month’s financial coverage report. However the broad indicators of stickier than anticipated inflation seen throughout all of this week’s knowledge to this point warrants a level of warning from the MPC, and certain a considerably extra hawkish tone from policymakers than was seen in March.”