Inflation slows further to 2.6% after drop in petrol prices

UK inflation slowed down for the second month in a row in March on the back of falling petrol prices, according to official figures.

The Office for National Statistics (ONS) also said a drop in the price of computer games contributed to the lower inflation reading.

The rate of Consumer Prices Index (CPI) inflation eased to 2.6% for the month, from 2.8% in February, the statistics body said.

It was a steeper fall than predicted by economists, who had expected a reading of 2.7% for March, and marks the lowest reading since December.

The bigger-than-expected drop in inflation will be positively received by Chancellor Rachel Reeves, as it moves closer to the Bank of England’s 2% target rate.

The reading is also likely to increase calls for interest rates – which are typically kept high to help bring inflation down – to be reduced from their current rate of 4.5% at the Bank’s next rate-setting meeting in May.

However, economists have predicted that inflation will shoot higher in April after a raft of consumer bill increases – such as energy and water prices – as well as the potential impact of higher taxes and labour costs for businesses, which are likely to pass some costs on to customers.

ONS chief economist Grant Fitzner said: “Inflation eased again in March, driven by a variety of factors including falling fuel prices and unchanged food costs compared with the price rises we saw this time last year.

“The only significant offset came from the price of clothes, which rose strongly this month, following the unusual decrease in February.”

Motor fuel prices were 5.3% lower for the month, marking the biggest decline for four months.

It was partly driven by a fall in the average price of petrol by 1.6p per litre between February and March to stand at 137.5p per litre. It was down from 144.8p per litre in March 2024.

The ONS also said prices in the recreation and culture sector rose at their slowest level for more than three years in March, with a 2.4% increase.

This was partly driven by a fall in the cost of video games for the month.

Meanwhile, clothing and footwear prices rose again for the month as many retailers reduced discounting, with a 1.1% increase after a surprise drop in February.

Ms Reeves said: “Inflation falling for two months in a row, wages growing faster than prices, and positive growth figures are encouraging signs that our Plan for Change is working, but there is more to be done.”

The ONS’s preferred measure of inflation, Consumer Prices Index including owner occupiers’ housing (CPIH), eased back to 3.4% for March, from 3.7% the previous month.

Meanwhile, the Retail Prices Index (RPI) rate of inflation declined to 3.2% from 3.4%.