UK inflation dropped to 2.6% in March, increasing the pressure on Bank of England policymakers to cut interest rates next month asDonald Trump’s tariff wars cast an uncertain outlook.
Prices growth was weak ahead of an expected rise in April as households begin to pay higher council tax and utility bills.
Last month’s reading came in below City forecasts of a fall to 2.7%. It comes after the consumer prices index fell in February to 2.8%, down from 3% in January.
The Office for National Statistics (ONS) said falling fuel prices and slowing increases in the cost of a night out drove inflation lower, although this was offset by price rises for clothing and footwear. The price of food was also a factor in dragging down prices growth after it was flat in March compared with rising prices in the same month last year.
The average price of petrol fell by 1.6p a litre between February and March 2025 to stand at 137.5p a litre, down from 144.8p a litre in March 2024, the ONS said.
Trump’s tariff announcements this month – in which huge levies were imposed on US imports before market turmoil sparked an abrupt U-turn – have clouded the picture for inflation, with the turmoil widely expected to dampen growth.
Ruth Gregory, the deputy chief economist at the consultancy Capital Economics, said inflation was likely to hit 3% in April due to a 6.4% month-on-month rise in utility bills and 26% month-on-month leap in water bills.
She estimated that the peak inflation rate this year would be 3.5%, “but we doubt it will stay there long. We expect the weak economy to prompt an easing in domestic inflation.”
Before Trump’s tariff announcements several analysts had predicted that inflation would start rising from April onwards, peaking at about 4% over the summer before falling back next year.
However, the US president’s trade war has cast doubt on those forecasts for CPI, which could peak at a lower rate if China is allowed to dump goods in Europe that were previously destined for the US.
Gregory said her forecasts were in doubt as Trump’s tariffs begin to harm the global economy and drag down prices across the world. It was possible that inflation would peak at a much lower rate, though the outlook remained uncertain.
With inflation remaining about the Bank of England’s 2% target, financial markets are betting on an 86% probability of an interest rate cut at its 8 May meeting, which would lower the key base rate by a quarter of a percentage point to 4.25%.
One of the Bank’s previous deputy governors, Charlie Bean, said last week that tariff uncertainty meant the Bank should set aside concerns about inflation and cut the cost of borrowing by at least half a per cent, while the former prime minister Gordon Brown has called for a coordinated rate cut by all major central banks.
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Wage increases remain stubbornly above inflation despite a slowdown in the jobs market. Earnings, excluding bonuses, rose to 5.9%, from a revised 5.8% in the previous rolling three-month period to the end of January, figures showed on Tuesday. This was slightly below a prediction of 6% from City economists.
Jobs figures showed a weakening labour market as employment in March fell and firms cut back on job adverts.
The chancellor, Rachel Reeves, said: “Inflation falling for two months in a row, wages growing faster than prices and positive growth figures are encouraging signs that our plan for change is working, but there is more to be done.
“I know many families are still struggling with the cost of living and this is an anxious time because of a changing world. That is why the government has boosted pay for 3 million people by increasing the minimum wage, frozen fuel duty and begun rolling out free breakfast clubs in primary schools.”
The shadow chancellor, Mel Stride, said inflation was expected to increase further this year “because of the chancellor’s choices”.
He said: “The Conservatives left Labour with inflation bang on target but the chancellor’s reckless union payouts, tax hikes, and borrowing binge is driving up the cost of living.
“Be in no doubt, the chancellor’s choices are keeping inflation higher for longer and working families are paying the price.”