UK inflation rate has fallen. Here’s why it won’t last long

The latest official figures show that the rate of inflation in the UK has eased for the second consecutive month. In March, prices rose at an annual rate of 2.6%, a significant drop from the 11% peak seen in 2022. This decrease in inflation is attributed to falling petrol and toy prices, along with unchanged food prices. However, analysts warn that this may just be the “calm before the storm”.

Looking ahead, there are three key areas where inflation is expected to rise:

1. April’s bills and costs: Household bills increased at the start of April, including utilities, council tax, phone and broadband contracts, and the TV license. Businesses also faced higher employer National Insurance contributions, which may lead to price hikes. These increased costs are likely to push the inflation rate over 3% in the next data release. However, there is uncertainty about how long this high inflation will last.

2. The impact of Donald Trump’s tariffs: The US president’s tariff policies have caused uncertainty in global trade. While higher tariffs could make goods more expensive for consumers, the situation is nuanced. The UK-US trade relations are expected to improve, which may limit price rises. Additionally, Chinese goods facing high tariffs in the US may find their way to the UK, increasing price competition and slowing inflation.

3. Performance of the UK economy: Economic growth in the UK has been sluggish, with concerns about a potential recession. A slowdown in economic growth could lead to job losses and reduced consumer spending, ultimately lowering inflation. To boost growth, the Bank of England may consider cutting interest rates, which could further impact inflation levels.

In conclusion, the path of inflation in the UK remains uncertain, with various factors at play. The government, businesses, and policymakers will need to navigate carefully to balance economic growth and inflation levels in the coming months.