March Inflation Fall Gives Bank of England Flexibility

Over the last couple of months, the Consumer Prices Index (CPI) measure of inflation has been bouncing up and down in a confused manner, as are governments, investors, business owners and consumers.  Inflation fell in February to 2.8% pa from 3.0% pa and was down again for March 2025 to 2.6% pa.

• December 2024 – CPI fell 0.1% to 2.5% pa.
• January 2025 – CPI climbed a massive 0.5% to 3.0% pa.
• February 2025 – CPI has fallen again by 0.2% to 2.8% pa.
• March 2025 - (released this morning by the Office for National Statistics ONS) – CPI has fallen again by 0.2% to 2.6% pa

The main contributors to price rises were:

• Clothing and footwear
• Furniture and households
• Miscellaneous goods and services.

Downward pressure came from:

• Recreation and culture
• Transport
• Restaurants and hotels
• Communications
• Food and non-alcoholic drinks

RPI Also Down by 0.2%

The old measure of inflation RPI, an arithmetical mean of the average prices of a basket of household spending (rather than the geometric mean for CPI) and still our preferred measure of real inflation, fell 0.2% to 3.2% pa and is now back to 2024 figures but the picture is much worse now than it was before Reeves’ first budget on 30th October 2024.

Comment

The falls gives the Bank of England room for manoeuvre on any interest rate cuts next month and with Trump tariff fears for a global recession added to national insurance increases and minimum wage increases for employers, we suggest the argument for a rate cut is stronger than ever.

Key dates for us all:

• Next Bank of England MPC interest rate decision 8 May 2025.
• Next ONS inflation report 21 May 2025.