Inflation eases but still remains above 10% as food costs at 45-year high
The rate of inflation has eased slightly but still remains above 10%, according to official figures showing food and drink costs at a 45-year high.
The Office for National Statistics (ONS) said the consumer prices index (CPI) measure slowed to 10.1% in March from 10.4% the previous month.
Economists had largely expected a figure of 9.8%.
The data represents a slight improvement in the energy-driven cost of living crisis as fuel prices fell back to levels seen a year ago when Russia’s war in Ukraine prompted a spike in oil costs.
However, upwards pressure remained from household gas and electricity and food, including essentials such as bread, milk and eggs.
Food and non-alcoholic drink inflation was measured at 19.1% by the ONS – the highest level since August 1977.
High commodity and production costs are mostly to blame.
Other factors behind the spike were highlighted in February’s inflation data when the salad shortage struck supermarkets.
A crumb of comfort is that prices for goods such as tomatoes and cucumbers are tipped to fall sharply as the UK growing season gathers pace.
ONS chief economist Grant Fitzner said of the easing in overall inflation in March: “The main drivers of the decline were motor fuel prices and heating oil costs, both of which fell after sharp rises at the same time last year.
“Clothing, furniture and household goods prices increased, but more slowly than a year ago.
“However, these were partially offset by the cost of food, which is still climbing steeply, with bread and cereal price inflation at a record high.
“The overall costs facing business have been largely stable since last summer, although prices remain high.”
The latest figures were released against a backdrop of hopes that a deceleration in inflation would allow the Bank of England to pause its action to battle inflation through interest rate rises.
It has raised Bank rates at 11 consecutive meetings since December 2021 in a bid to keep a lid on price pressures in the economy.
While policymakers can do nothing about things like energy – the main driver of the inflation crisis – the Bank can look to take demand out of the economy by raising borrowing costs.
It will have been encouraged by the easing in the headline rate of inflation.
But a separate measure closely watched by the Bank that strips out volatile price elements, known as core inflation, remained static at 6.2%.
Employment data released on Tuesday also showed that wages continued to creep upwards, albeit at levels well below CPI.
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What is driving wages up?
The Bank has previously expressed worries that wage rises seeking to combat the hit to household budgets from inflation, which have come into sharp focus during the winter strikes across the economy, risk stoking inflation ahead.
Financial market data suggested the chance of a 0.25 percentage point rise in Bank Rate at the next meeting, due next month, had risen from 80% to 95%.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, commented: “‘The heat has been turned down on the bubbling cauldron of prices, but inflation is still scalding and interest rates look set to be pushed up again to try and cool it down rapidly.
“Instead of retreating below double digits, CPI is staying stubbornly high, causing more pain for companies and consumers.”
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Chancellor Jeremy Hunt said: “These figures reaffirm exactly why we must continue with our efforts to drive down inflation so we can ease pressure on families and businesses.
“We are on track to do this – with the OBR (Office for Budget Responsibility) forecasting we will halve inflation this year – and we’ll continue supporting people with cost-of-living support worth an average of £3,300 per household over this year and last, funded through windfall taxes on energy profits.”
Labour shadow chancellor, Rachel Reeves, said: “The question for families remains as real as ever – when will they feel better off under this Conservative government?
“And, why when the cost of living continues to bite, is the government refusing to freeze council tax this year, paid for by a proper windfall tax on oil and gas giants?”
Sir Keir Starmer has said his government stands ready to use industrial policy to “shelter British business from the storm” after Donald Trump’s new 10% tariff kicked in.
The UK was among a number of countries hit with the lowest import duty rate following the president’s announcement on 2 April – which he called ‘Liberation Day’, while other nations, such as Vietnam, Cambodia and China face much higher US levies.
But a global trade war will hurt the UK’s open economy.
The prime minister said “these new times demand a new mentality”, after the 10% tax on British imports into America came into force on Saturday. A 25% US levy on all foreign car imports was introduced on Thursday.
It comes as Jaguar Land Rover announced it would “pause” shipments to the US for a month, as firms grapple with the new taxes.
On Saturday, the car manufacturer said it was working to “address the new trading terms” and was looking to “develop our mid to longer-term plans”.
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Jobs fears as Jaguar halts shipments
Referring to the tariffs, Sir Keir said “the immediate priority is to keep calm and fight for the best deal”.
Writing in The Sunday Telegraph, he said that in the coming days “we will turbocharge plans that will improve our domestic competitiveness”, adding: “We stand ready to use industrial policy to help shelter British business from the storm.”
It is believed a number of announcements could be made soon as ministers look to encourage growth.
NI contribution rate for employers goes up
From Sunday, the rate of employer NICs (national insurance contributions) increased from 13.8% to 15%.
At the same time, firms will also pay more because the government lowered the salary threshold at which companies start paying NICs from £9,100 to £5,000.
Also, the FTSE 100 of leading UK companies had its worst day of trading since the start of the pandemic on Friday, with banks among some of the firms to suffer the sharpest losses.
Sir Keir said: “This week, the government will do everything necessary to protect Britain’s national interest. Because when global economic sands are shifting, our laser focus on delivering for Britain will not. And these new times demand a new mentality.”
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Trump defiant despite markets
UK spared highest tariff rates
Some of the highest rates have been applied to “worst offender” countries including some in Southeast Asia. Imports from Cambodia will be subject to a 49% tariff, while those from Vietnam will face a 46% rate. Chinese goods will be hit with a 34% tariff.
Imports from France will have a 20% tariff, the rate which has been set for European Union nations. These will come into effect on 9 April.
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Sir Keir has been speaking to foreign leaders on the phone over the weekend, including French President Emmanuel Macron, Italian Prime Minister Giorgia Meloni and Australian Prime Minister Anthony Albanese, to discuss the tariff changes.
A Downing Street spokesperson said of the conversation between Sir Keir and Mr Macron: “They agreed that a trade war was in nobody’s interests but nothing should be off the table and that it was important to keep business updated on developments.
“The prime minister and president also shared their concerns about the global economic and security impact, particularly in Southeast Asia.”
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Trump’s warning
Mr Trump has warned Americans the tariffs “won’t be easy”, but urged them to “hang tough”.
In a post on his Truth Social platform, he said: “We are bringing back jobs and businesses like never before.
“Already, more than FIVE TRILLION DOLLARS OF INVESTMENT, and rising fast!
“THIS IS AN ECONOMIC REVOLUTION, AND WE WILL WIN. HANG TOUGH, it won’t be easy, but the end result will be historic.”
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