It marks the second month in a row that the rate at which prices are rising has eased, with the figure dropping to 2.8% for February. Economists had expected a rate of 2.7% for March.
The drop in inflation has fuelled hopes that the Bank of England will cut interest rates next month – and potentially several more times in 2025.
Price growth in March was weak ahead of an expected rise in April as households begin to pay higher council tax and utility bills.
The Consumer Prices Index including owner-occupiers’ housing costs (CPIH) rose by 3.4% in the 12 months to March 2025, down from 3.7% in the 12 months to February.
The largest downward contributions to the monthly change in both CPIH and CPI annual rates came from recreation and culture and motor fuels, with a further large downward effect in CPIH from housing and household services; the largest – and partially offsetting – upward contribution came from clothing.
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Jonathan Moyes, head of investment research at Wealth Club, said: “This was a slightly softer month for inflation than expected, coming in 0.1% below expectations at 2.6%. This likely gives the Bank of England the green light to cut interest rates in its May meeting.
“The UK economy is not out of the woods yet. There is a long and swinging road to reach the bank’s 2% target. Services inflation remains stubbornly high, largely due to higher housing costs (higher rents and council tax). The rise in the energy price cap is also set to see inflation jump in April.”
Matt Hartley, director of engagement at the Money Advice Trust, said: “While this slight fall in inflation might be seen as some relief, the reality will feel very different for many households. In a month where the country is grappling with significant increases in council tax, utility and other household bills, people’s budgets remain incredibly stretched.
“Wider economic uncertainty, including US tariff action, also risks pushing up prices in the coming months, making it a worrying time for many.
“The government must take action to help households cope. Introducing a social tariff to help with energy bills and investing in council tax support would be a good start.”
This article was first published on Mortgage Solutions‘ sister site, YourMoney.com. Read: Slowdown in petrol prices drives inflation down in March
