UK prices moderated in March, with the Consumer Price Index (CPI) falling for the second month to an annual 2.6% relative to 2.8% in February and expectations of 2.7%.
The surprise cool-off was due to a drop in petrol and diesel prices and services inflation, a significant component that has dragged headline numbers away from target in the past, which eased from 5% to 4.7% last month.
While this should be good news and might offer the Bank of England (BoE) some room to manoeuvre on interest rate policy next month, experts deemed the news as almost redundant, given all the price rises expected in April.
Rob Morgan, chief analyst at Charles Stanley Direct, said that the trend of gradually easing price rises is “likely to be short lived”.
“Inflation is forecast to move in the wrong direction most of this year, driven by higher energy and utility costs,” he said.
“The picture for the services component could change too, as renewed pressure emerges from businesses looking to pass on additional employment costs that have taken effect this month.”
The inflation rate is expected to jump to 3.6% when April's data is released next month and could hit 3.75% in the third quarter, according to the latest forecast from the BoE.
While market participants are still expecting a 25 basis point rate cut at the next monetary committee meeting in May, the picture is much hazier further into the year, with US tariffs having an unpredictable impact on different countries and on global growth.
For Danni Hewson, AJ Bell's head of financial analysis, concerns about global growth may keep the oil price subdued.
“Homegrown issues, however, such as increased labour costs, could result in a significant fall in employment and lower wage growth,” she said. “The Bank’s peak 3.7% forecast in the summer could be scaled back as the spectre of a trade war looms over the global economy.”
Scott Gardner, investment strategist at Nutmeg, tried to look at the bright side. “The UK hasn’t placed any reciprocal tariffs on the US and the ongoing global trade tensions will have a limited immediate impact on UK prices,” he said.
“Adding this to the domestic backdrop, inflation will likely rise further above the Bank of England’s target of 2% over the coming months, but it is now a question of by how much and the timing of the peak. If petrol prices remain low, this increases the chances of a more muted peak in the third quarter than is currently being forecasted by the Bank of England.”