Good news as CPI inflation falls to 2.6 per cent but the cost-of-living outlook remains at the mercy of global forces in the coming months

CPI inflation dipped in March – falling by 0.2 percentage points to reach 2.6 per cent – but huge global forces will shape changes in the cost of living in the coming months, the Resolution Foundation said today (Wednesday).

This drop is welcome, exceeding the expectations of both the market and the Bank of England (of 2.7 per cent). The main drivers of the fall were petrol, alongside welcome reductions in both overall services and goods inflation. Offsetting this was an unusual rise in erratic clothing and footwear prices.

Despite this good news, inflation will be going up next month: CPI is expected to jump by around 0.9 percentage points in April, almost entirely driven by energy prices which are set to rise by 6 per cent as the Ofgem price cap increases.

Bill increases are particularly concerning to low-to-middle income households, for whom energy spending took up nearly twice as much of their total consumption in 2022-23 as it did for high-income households (11 per cent compared to 6 per cent). These persistent pressures on core costs are hitting household budgets that are already stretched, with food insecurity recently reaching rates of 11 per cent (in 2023-24).

Looking further ahead, the fast-changing situation around global trade has increased uncertainty about where inflation goes next. There is good reason to think President Trump’s tariffs will bring inflation down in the near term – due to lower oil prices (Brent crude is down more than 10 per cent since the start of April) and trade diversion.

Lower inflation will make it easier for the Bank of England to cut rates in the coming months. But this more benign picture could easily change if a trade war materialises, with higher tariffs globally leading to renewed upward pressure on inflation, hitting poorer households already struggling with the high cost of living.

James Smith, Research Director at the Resolution Foundation, said:

“There was a welcome dip in inflation in March, with CPI reaching 2.6 per cent. But this fall – partly driven by petrol and services – comes among overwhelming uncertainty as to where inflation goes from here.

“Although inflation will rise sharply in April, reflecting an increase in the Ofgem price cap, the truth is that the outlook for UK inflation hinges on President Trump’s tariff policies.

“Global trade uncertainty could drive down our prices, with oil already down more than 10 per cent since the start of April – but a global trade war would create renewed inflation, increasing pressure on British families already struggling with the cost of living.”