UK inflation slows less than expected in March but remains on the path towards 2% target

British inflation slowed by less than expected to a two-and-a-half-year low of 3.2% year on year in March, down from a 3.4% increase in February, but ticked above 3.1% forecast, with slowdown in food prices seen as the main contributor to the decrease in headline inflation.

Month on month CPI was unchanged at 0.6% in March. 

Core inflation, excluding the most volatile energy, food and tobacco components, slowed to 4.2% in March from 4.5% in February, but also missed consensus at 4.1%, while services inflation, closely watched by BoE, eased to 6.0% last month from 6.1 in February

Economists expect inflation to remain on the path towards the central bank’s 2% target, though seeing the movements as gradual and in small steps.

In such scenario, policymakers will remain under pressure to start cutting interest rates, however, will require more evidence that consumer prices are in a sustainable return towards the target, before making any decision. 

The latest CPI data pointed to diverging inflation path in the US and Britain, as US consumer prices rose for the second consecutive month, while remaining in a downward trajectory in the UK.
This may further impact the central banks as BoE is still expected to cut rates later this year, although with trimmed bets about the size and pace of cuts, while the Fed’s top officials pointed to the lack of confidence to move into policy easing cycle after recent disappointing data.