United Kingdom inflation drop raises questions over rate increase

United Kingdom inflation drop raises questions over rate increase

The Office for National Statistics said consumer prices rose by 2.5 percent in the year to March, the weakest in 12 months and down from 2.7 percent the month before.

Average wages in Britain are rising faster than prices for the first time in about a year, official figures showed Tuesday, a development that will likely fuel expectations that the Bank of England will raise interest rates again next month.

Chancellor Philip Hammond said: 'Inflation fell to 2.5 per cent in March and is expected to keep falling.

Inflation had risen to 3% following Britain's vote to leave the European Union as the pound slumped, pushing up the cost of imports.

United Kingdom inflation unexpectedly cooled to a one-year low in March, according to figures that may raise doubt over bets that the Bank of England will raise interest rates in May.

Technically, inflation refers to the rate of the general rise or movement in prices of goods and services consumed in an economy.

Sterling fell after the data, but few economists thought the figures would stop the majority of Bank of England rate-setters from voting for an increase in rates to 0.75 percent next month.

That should help to ease some of the inflation pressure which has hurt the spending power of many households.




"In any case, the fact that inflation has fallen further means that real wages are likely to have strengthened more than expected, relieving some of the pressure on consumers which may make it easier for the MPC to raise interest rates further".

"The labour market continues to be strong, and for the first time in nearly a year, earnings have grown slightly after inflation has been taken into account", said Matt Hughes at the ONS.

Shadow chief secretary Peter Dowd said: 'Today's inflation figures are still higher than the Bank of England's target.

Former BoE policymaker David Blanchflower and fellow academic David Bell said in a research paper earlier this month that British wages are unlikely to take off due to the still-large numbers of part-time workers who want to work longer hours.

Month on month, CPI was up just 0.1%, short of forecasts for a 0.3% rise and down from the 0.4% gain in February. It traded at US$1.4329 as of 10 am in London.

In the United Kingdom, the official measure of inflation has been higher than the average increases in wages since February 2017.

The level of inflation in the United Kingdom fell more than expected in March, as the squeeze on the cost of living for Brits caused by the Brexit vote abates.

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