Official data on Wednesday showed that UK consumer price inflation fell less than expected to 10.1% in March from 10.4% in February and is now the highest in Western Europe.
Economists polled by Reuters had forecast CPI would fall to an annual rate of 9.8% in March, moving further away from October’s 41-year high of 11.1%, but still eroding the spending power of workers whose wage gains have been smaller.
Despite the drop in March, Britain’s inflation rate was the highest in Western Europe and was the only country in the region to hit double digits last month, following a higher rate in February in Austria.
The data is likely to strengthen bets that the Bank of England will raise rates again next month after core inflation, which strips out volatile energy and food prices, failed to fall as expected in March and held at 6.2%.
Treasurer Jeremy Hunt said: “These figures reiterate precisely why we must continue to work to keep inflation down so we can take the pressure off households and businesses.”
The ONS said food and non-alcoholic drink prices rose 19.1% year-on-year in March, the biggest increase since August 1977.
The Bank of England said last month that it expected inflation to fall “substantially” in the second quarter. In February, the Bank of England had predicted that the inflation rate in March would be 9.2%.
“The likelihood of another 25 basis point hike in May is high, and the BoE must stand ready to take further action unless economic data show clearer signs of cooling,” said Hugh Gimber, global market strategist at JPMorgan Asset Management. express.
While inflation is likely to fall naturally as last year’s sharp rise in energy prices falls outside the annual comparison, the BoE is trying to gauge how quickly it will fall.
Other indicators looked mixed on that front, with data on Tuesday showing stronger-than-expected wage growth. However, business surveys point to pressure on cooling costs and selling prices.
Financial markets on Tuesday pointed to a 95 percent chance the Bank of England would raise interest rates next month, up from 85 percent on Tuesday.
Inflation in prices charged to manufacturers fell sharply to 8.7% in March, the lowest level since October 2021, from 11.9% in February, largely reflecting lower oil prices.
Manufacturers’ raw material costs were 7.6 percent higher than a year earlier, down from 12.8 percent in February, but the decline was less than economists polled by Reuters had expected.