The 12 month rate of CPI inflation eased in March to 2.6% from 2.8% in February in an unexpected second consecutive monthly fall.

Falls in the cost of recreation and motor fuel, along with drops in housing costs, were the main downward pressures on CPI measures.

Rises in the cost of clothing were the main upward pressure.

Experts had expected no or little change but have warned that the April figures could be quite different with major rises in council tax, energy costs and other unavoidable costs in April likely to push up inflation in the coming months.

On the positive side many experts now have a strong expectation of interest rate cuts later this year.

On a monthly basis, CPI rose by 0.3% in March, compared with a rise of 0.6% in March 2024.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.4% in the 12 months to March, down from 3.7% in the 12 months to February.

Core CPIH (excluding energy, food, alcohol and tobacco) rose by 4.2% in the 12 months to March, down from 4.4% in the 12 months to February, The CPIH goods annual rate eased from 0.8% to 0.6%, while the CPIH services annual rate slowed from 5.7% to 5.4%.

Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.4% in the 12 months to March, down slightly from 3.5% in the 12 months to February. The CPI goods annual rate eased from 0.8% to 0.6%, while the CPI services annual rate slowed from 5.0% to 4.7%.

RPI, the older measure of inflation, fell from 3.4% in February to 3.2% in March.

Industry reaction was one of relief but with caution for the future.

Jonny Black, chief commercial and strategy officer at Aberdeen Adviser, said: “Although unexpected, a second consecutive fall in inflation brings some welcome relief - but it’s no reason to become complacent, especially for households still juggling higher bills and everyday costs.  

“The Bank of England still forecasts inflation could peak at 3.7% towards the end of the year, but with global headwinds gathering - from rising energy prices to the ripple effects of US-led tariffs - that may prove to be a low estimate.   

Lindsay James, investment strategist at Quilter, said: “Following a bumper reading for economic growth in February, today’s fall in inflation, slightly better than expected, will be welcome news to the government. With the jobs market weakening somewhat, and very real and present tariff threats still in play, any downward pressure on inflation will be hailed.

“Much like financial markets, however, the outlook for inflation remains very uncertain. Nobody quite knows what is going to happen next on President Trump’s tariff rollercoaster, and as such the economic environment will be volatile. Furthermore, there are specific inflationary pressures for the UK, with the new rates of national insurance now in place on employers and the likely upward impact this will have on prices. 

“But there is good news too. Energy prices have dropped quite significantly since the start of the year, with oil down around 15% year to date, whilst European natural gas prices are around 25% lower. Whilst this in part reflects the weaker outlook, higher levels of OPEC+ production have also seen oil prices fall, and if this is sustained, then it could offset some of the inflationary pressures the UK has specifically."

Nathaniel Casey, investment strategist at wealth manager Evelyn Partners, said: “Despite the lower-than-expected annual reading for March, the UK continues to face stickier inflationary pressures compared with other advanced economies. This has been reflected in the bond market, with gilt yields remaining significantly higher than their European counterparts such as German bunds, even as both markets face a similarly weak growth profile.

“While both March and February’s inflation data came in just below economists’ expectations, it follows a far stronger than expected set of figures in January and remains stubbornly above the Bank of England’s target of 2%. The BoE expects inflation to move higher over course of 2025, before slowly returning to target in 2026."