UK inflation dropped to 2.6% in the year to March, down from 2.8% in February, as falling petrol prices helped ease cost pressures, according to the latest data from the Office for National Statistics (ONS). The decline, which exceeded analysts’ expectations, offers a temporary reprieve for households, but economists warn that price pressures could rise again in the coming months.
The ONS reported that petrol prices fell by 1.6p per litre between February and March, averaging 137.5p per litre. A decrease in recreation and culture costs — particularly in toys, games, and hobbies — also contributed to the easing inflation. However, clothing prices saw a significant rise, partially offsetting the overall decline.
While inflation is still above the Bank of England’s 2% target, the current slowdown suggests prices are rising at a more manageable pace. Wages continue to outpace inflation, with average earnings increasing by 5.9% year-on-year, driven largely by stronger public sector pay growth.
Despite the positive data, experts caution that the downward trend may not last. Michael Saunders, senior advisor at Oxford Economics and a former Bank of England policymaker, said inflation is expected to rise to around 3% in April due to higher gas, electricity, and water bills.
He also warned that escalating trade tensions sparked by former US President Donald Trump’s tariff policies could weigh on UK exports, consumer spending, and business investment. “We may see cheaper exports redirected from the US to the UK and Europe, but the broader impact will be a weaker economy with rising unemployment,” Saunders told BBC Radio 4.
Oil prices, which have been falling due to weaker global demand, may continue to push petrol prices down, offering some relief. However, rising business costs remain a concern, particularly for energy-intensive firms.
Sonja Skelton, managing director of West Special Fasteners, which supplies non-standard fasteners for defence and construction, said staffing costs and energy bills have become increasingly burdensome. With recent National Insurance hikes costing her business over £60,000, she is focusing on efficiency to avoid passing the burden onto customers. But rising material prices — such as a specialist alloy that has jumped from £30 to £50 per kilo in five years — mean price hikes may be unavoidable.
The Bank of England, which currently holds its base interest rate at 4.5%, may come under pressure to cut rates at its next meeting amid slowing inflation, falling job vacancies, and growing economic uncertainty. However, strong wage growth could complicate such a decision.
Chancellor Rachel Reeves welcomed the drop in inflation as “encouraging,” while acknowledging continued pressure on families. Shadow Chancellor Mel Stride criticised the government’s spending policies, blaming them for keeping inflation above target. Liberal Democrat Treasury spokesperson Daisy Cooper also raised concerns, warning that Trump’s trade war could further strain household budgets.
Analysts expect inflation to continue trending toward the 2% target by 2026, but acknowledge that global economic volatility may disrupt that trajectory.
