CPI inflation dipped in March, dropping by 0.2 percentage points to 2.6 percent, with average wages rising 5.9 percent in the three months to February 2025.
The data from the Office for National Statistics shows that lower prices for petrol, and overall services and goods were the main drivers. In contrast, clothing and footwear prices increased.
The reduction is better than the Bank of England had hoped for (2.7 percent) making interest rate cuts more likely, however, the Resolution Foundation said that the cost of living will continue to be driven by global economics in the months ahead.
The think tank said inflation is expected to “jump” by around 0.9 percentage points in April, which will be largely driven by energy price rises set to increase by 6 percent as the Ofgem price cap increases.
Low-to-middle income households will be particularly concerned by the energy price hikes as spending on these bills took up 11 percent of their total consumption in 2022-23, which is almost double that of high-income households at 6 percent.
But the foundation said while there is increased uncertainty about where inflation goes next, there is good reason to think president Trump’s tariffs will bring inflation down in the near term. It pointed to lower oil prices as the main driver, with Brent crude down more than 10 percent since the start of April.
The March drop in inflation will make it easier for the Bank of England to cut interest rates in the coming months. But the foundation warned that this “more benign picture could easily change if a trade war materialises”. Higher global trade tariffs would create upward pressure on inflation, hitting poorer households already struggling with the high cost of living.
James Smith, research director at the Resolution Foundation, said: “There was a welcome dip in inflation in March, with CPI reaching 2.6 per cent. But this fall – partly driven by petrol and services – comes among overwhelming uncertainty as to where inflation goes from here.
“Although inflation will rise sharply in April, reflecting an increase in the Ofgem price cap, the truth is that the outlook for UK inflation hinges on president Trump’s tariff policies.
“Global trade uncertainty could drive down our prices, with oil already down more than 10 percent since the start of April – but a global trade war would create renewed inflation, increasing pressure on British families already struggling with the cost of living.”
The ongoing pressure on workers comes as employers too face rising costs.
Anna Spaul, market intelligence director at ManpowerGroup UK, said April was always going to be a tough month for British employers who have been preparing for cost increases via national insurance and the living wage rises.
ONS data out yesterday (Tuesday 15 April), showed that payrolled employees fell by 78,000 (0.3 percent) in March, decreasing by 70,000 (0.2 percent) year on year to 30.3 million. However, ONS emphasised that these are “early estimates” that they expect to revise. The estimated number of job vacancies also fell, dropping 26,000 in the three months to March 2025. ONS said that this was the 33rd consecutive quarterly decline.
Spaul said: “The overall employment landscape is undergoing a seismic shift. We’re seeing much broader scale cutbacks than we’d previously anticipated as higher costs coincide with the Trump-led tariffs and British Steel negotiations, all adding to a greater sense of uncertainty for businesses.
“Because the ONS labour market data is also a lagging indicator the impact of these combined factors won’t be fully understood until later in the year – and even then caution will be necessary as work continues to improve the data because of poor response rates to the Labour Force Survey. We anticipate in the meantime that decisions around both hiring and pay will be put on ice until a clearer path to growth and productivity is evident.”
She said employers can “bucket” these major changes into two distinct categories; those we know for certain, such as the Employment Rights Bill and Welfare Reforms, and those that are much less predictable such as the tariff changes and impacts.
“The next few weeks will need teams to be nimble, adaptable and quick to respond; businesses that can should invest their time and efforts into training, upskilling and internal mobility, to stay resilient and prepare for new challenges ahead,” Spaul said.
Jeanette Wheeler, chief people officer at MHR, said: “The latest ONS figures reveal a mixed picture, but one thing is clear – businesses are still facing an uphill struggle as they navigate an uncertain global market.
“The employment rate for people aged 16 to 64 has slightly increased to 75.1 percent for December 2024 to February 2025. This means more people are working, easing some concerns over prolonged economic inactivity. However, the unemployment rate for those aged 16 and over remains at 4.4 percent. While this hasn’t seen much change over the latest quarter, it is still higher than it was a year ago. Meanwhile, the economic inactivity rate for those aged 16 to 64 has fallen to 21.4 percent, suggesting that more people are returning to work even if unemployment numbers don’t show this similar improvement.”
Wheeler said that the continued decline in job vacancies indicates employers are remaining extremely cautious about hiring amongst economic uncertainty.
“This is coupled with research released from the Institute of Chartered Accountants in England and Wales that UK business confidence has fallen to the lowest level for more than two years, amid growing concern over tax rises.
“Adding to the challenges, the ONS has estimated 52,000 working days were lost in February 2025 because of labour disputes. The UK is facing productivity declines, falling business confidence, and slower performance. Looking ahead, the government must prioritise support for businesses as the workforce starts to feel the impact of rising employer national insurance contributions. Now is the time to build back confidence if the government wants to achieve its aim of growing the economy.”
