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Inflation tipped to hold at 2.7% in March as falling food and fuel prices are offset by higher Easter airfares

  • Economists forecast inflation will have remained steady in March
  • Some experts expect inflation to fall  later in the year after the BRC Shop Price Index data showed food prices dropped at their fastest rate in 18 months
  • Slower CPI growth could ease pressure on Bank of England ahead of expected 0.25% interest rate hike in May 

Inflation is likely to have remained unchanged at 2.7 per cent in March due to higher air fares over Easter – despite a drop in food and fuel prices. 

A consensus of economists has forecast the Office for National Statistics' consumer price index to come in at 2.7 per cent for March, in line with February's reading and below the 3 per cent recorded in January.

Britons have benefited from slightly lower food prices over the past month on the back of the weaker pound. March also saw a bigger month-on-month drop in fuel prices than a year earlier.

But air fares helped offset this, having risen during the Easter bank holiday, which fell earlier than usual this year.

Inflation remained unchanged at 2.7% during March despite a drop in food and fuel prices

Inflation remained unchanged at 2.7% during March despite a drop in food and fuel prices

Martin Beck, lead UK economist at Oxford Economics, said: ‘Although we think that 2018 as a whole will see a steady decline in price pressures, March may have proved an exception to that.

‘For one, base effects which helped push down inflation in February, won't be as favourable.

‘Moreover, while average petrol prices at the pumps dropped 1.4 per cent between February and March this year, that was only a touch bigger than the 0.8 per cent drop seen between the same months in 2017.'

But some experts – including George Brown, economist at Investec – are expecting inflation to fall.

Brown highlighted BRC Shop Price Index data, which showed food prices dropping at their fastest rate in 18 months in March, which could have a larger impact on the inflation figure alongside fuel costs.

‘Overall though, the risks to inflation are skewed to the downside,’ he said.

Rising costs: The declines in food and fuel were offset by higher airfares during the Easter holidays

Rising costs: The declines in food and fuel were offset by higher airfares during the Easter holidays

‘We suspect that these factors will mean that we see another step down in CPI inflation in March such that it falls to a one-year low of 2.5 per cent.’

Slower growth from CPI could ease pressure on the Bank of England, which is widely expected to hike interest rates beyond 0.5 per cent in May.

Two of the nine Monetary Policy Committee members already voted to hike rates to 0.75 per cent last month, marking the first split vote since last November when rates were raised from 0.25 per cent to 0.5 per cent.

Rate hike: Slower growth from CPI could ease pressure on the Bank of England, which is widely expected to hike interest rates beyond 0.5% in May

Rate hike: Slower growth from CPI could ease pressure on the Bank of England, which is widely expected to hike interest rates beyond 0.5% in May

Despite keeping rates on hold, the committee said that ‘ongoing tightening of monetary policy’ would be needed to bring inflation back to the Bank's 2 per cent target.

It confirmed earlier comments from Governor Mark Carney who said rates would need to rise ‘somewhat earlier and by a somewhat greater degree’ to bring CPI back on track.

Experts widely believe rates will rise in May and possibly again in November, with another hike due in 2019, which would see rates climb to 1.25 per cent next year.

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Journalist, writer and broadcaster, based in London and Paris, her latest book is Touché: A French Woman's Take on the English. Read more articles from Agnes.

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