Inflation is set to fall closer to the Bank of England’s 2 per cent target, when the latest figures are released this week.
The consumer prices index (CPI), a measure of inflation, fell to 2.8 per cent in the year to February.
According to economists, March’s reading, which is released on Wednesday, 16 April, is likely to be 2.7 per cent.
But when the figure is next updated in May – reflecting figures in the year to April – the headline measure of inflation is set to rocket upwards to 3.6 per cent.
The Bank of England, S&P Global, and Pantheon Macroeconomics have forecast that inflation will fall to 2.7 per cent in this week’s reading.
However, most economists are expecting a rise, with Pantheon Macroeconomics expecting the figure to peak at 3.7 per cent in September.
In a preview paper, Pantheon Macroeconomics said, “We expect March’s Consumer to show CPI inflation slowing to 2.7 per cent from 2.8 per cent in February, as motor fuel prices drop and distortions from last year’s early Easter reduce services inflation by 0.1 percentage points.
Pantheon Macroeconomics expects core CPI inflation – which excludes volatile measures like energy, food, and alcohol – to stay steady at 3.5 per cent.
According to the forecaster, food inflation will drop from 3.3 per cent to 3.1 per cent, and alcohol inflation will fall from 2.5 per cent to 2.1 per cent
But it warns that March will be the “calm before the storm,” with multiple price hikes in April affecting next month’s readiness.
The energy price cap rose at the start of the month, while Government tax hikes on employers also took effect, which are expected to affect pricing.
“Factoring in another chunky used car price gain in April means we now expect headline inflation for the month to jump to 3.6 per cent,” said Pantheon Macroeconomics.
The Bank of England has an inflation target of 2 per cent and usually keeps interest rates high when the inflation level is above this.
However, economic uncertainty caused by US President Donald Trump’s tariffs means that economists think the Bank of England could cut interest rates from 4.5 per cent to 4.25 per cent in May, even though inflation is above target.
Many economists actually think that the current tariff situation could mean UK goods fall in price, because the US has imposed heavy tariffs on Chinese imports, and so China could end up looking for other markets to sell them in, one of which could be the UK.
Julian Jessop, an economics fellow at the libertarian Institute of Economic Affairs (IEA), said: “A trade war between the US and China could lower the prices of many goods imported into the UK unless the UK imposes tariffs of its own.
“This is because Asian producers who can no longer sell in the US are likely to divert goods to European markets. This will increase the supply of cheap goods, from tech products to clothing and furniture.”
However, economists also say the situation is fluid and could change, making future inflation hard to predict.
