The rate of inflation has dipped slightly but still remains in double digits, as UK households battle rising prices.
Inflation, which measures the rate of price rises, fell to 10.1% in the year to March from 10.4% in February, according to the Office for National Statistics (ONS). It remains in double digits, where it has been since August last year.
The Bank of England is watching these figures very closely as this is the last significant data release before their next meeting in early May.
Officials had hoped that there would be the first signs of a significant drop in inflationary pressure, but now it seems that interest rates will rise for a 12th time in a row next month.
The general consensus at the moment is that the Bank of England will need to hike by 25 basis points, or a quarter of one percentage point, at its May meeting, according to Giles Coghlan, chief market analyst, consulting for HYCM.
Read more: Inflation: From milk to bread, what is driving the surge in food prices
He said: "The surge in average earnings will no doubt be sounding alarm bells that the dreaded wage-price spiral could become entrenched in the UK, which has moved the dial in favour of another 25bps hike when the monetary policy committee convenes next month.
"Some investors are fearing that the dreaded wage-price spiral could be about to bite and it will be hard for the BoE to not hike rates next month”
Hugh Gimber, global market strategist at JP Morgan Asset Management, said "another 25 basis point rate hike appears highly likely in May".
The Bank’s monetary policy committee is next due to set rates on 11th May, then 22nd June, 3rd August and 21st September. By when the markets now suggest rates could have risen to 5%, from 4.25% at present.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "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."
The price inflation faced by UK consumers is the highest in western Europe. Britain was the only country in the region to post a double-digit number for March. Consumer price inflation in France in March was 5.6%, Germany 7.4%, Italy 7.6%. While Switzerland and Spain have the lowest rates in Europe – inflation in Switzerland was just 2.9% in March, and in Spain it was 3.3%.
UK now has Western Europe's highest rate of #inflation after today's disappointing data, which showed the annual growth rate for consumer prices cooled to 10.1% from 10.4%.
Consensus in a Reuters had pointed to a reading of 9.8% pic.twitter.com/SOYsOv8ZV8
— Andy Bruce (@BruceReuters) April 19, 2023
Food and non-alcoholic drink prices were the key driver of inflation, rising by 19.2% in the year to March.
Annual inflation has slowed following a rise in Feb 2023:
▪️ Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.9% in the 12 months to Mar 2023, down from 9.2% in Feb 2023
▪️ CPI rose by 10.1%, down from 10.4%
➡ https://t.co/xKfB2k07mc pic.twitter.com/Ab0eVpqiiN
— Office for National Statistics (ONS) (@ONS) April 19, 2023
Grant Fitzner, chief economist of the ONS, said that inflation remained at a “high level”. Falling motor fuel prices “were partially offset by the cost of food, which is still climbing steeply, with bread and cereal price inflation at a record high,” he said.
Vegetable shortages had helped push food and non-alcohol prices up to 18.2% in February, reflecting the sharpest increase in more than 45 years.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.9% in the 12 months to March 2023, down slightly from 9.2% in February but well above expectations.
Core CPIH, which excludes volatile food, energy, alcohol and tobacco prices, rose by 5.7% over the 12 months, unchanged from February’s annual climb.
As inflation remained above 10%, 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 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.”
Watch: How does inflation affect interest rates?