UK Inflation Dips in March as Interest Rate Cut Looms

Inflation in the United Kingdom fell for the second month running in March, largely as a result of lower prices at the pump, latest official figures showed a move that is likely to pile pressure on the Bank of England (BOE) to cut interest rates next month, the Associated Press (AP) reported.

Most economists believe the BOE can lower its main interest rate from 4.5%, as the peak in inflation is likely to be lower than previously expected.

The Office for National Statistics (ONS) said consumer prices rose by 2.6% in the year to March, down from 2.8% the previous month. The decline was bigger than anticipated, with most economists predicting a more modest drop to 2.7%.

However, inflation remains above the BOE's target of 2% and is set to rise to over 3% in April due to a confluence of factors, including higher domestic energy bills and the potential impact of increased taxes and labor costs for businesses—costs that are likely to be passed on to customers.

Still, most economists believe the bank can lower its main interest rate from 4.5%, as the peak in inflation is likely to be lower than previously expected—not least because U.S. President Donald Trump's tariff policies are likely to depress global growth and, consequently, prices.

One effect of Trump's tariff plans has been lower oil prices, which will help dampen inflation.

“An interest rate cut in May looks increasingly nailed on, and the path to more easing in the second half of the year is getting clearer,” said Luke Bartholomew, deputy chief economist at asset management firm Aberdeen.