UK inflation unexpectedly drops to 4%

Inflation unexpectedly slowed last month, official figures revealed today, as hard-pressed retailers slashed prices to pull in cautious consumers.





The Consumer Prices Index (CPI) rate of inflation was 4% in March, down from 4.4% in February and back to the level seen in January, the Office for National Statistics (ONS) said.



City analysts had expected the CPI rate to hold at 4.4%.



The drop in the cost of living was driven by falling food prices, the ONS said, which slipped 1.4% as supermarkets rolled out heavy discounts to draw in cash-strapped consumers.



The figures came as the British Retail Consortium (BRC) revealed the biggest sales drop in its 16-year history, with total sales in March dropping 1.9% on a year ago.



The improved rate of inflation will weaken the prospect of an imminent interest rate hike by policymakers at the Bank of England, although the figure is still double the Government's 2% target.



The most significant downward pressure between February and March came from the falling cost of food and non-alcoholic beverages, most notably fruit, bread and cereals.



Supermarkets were behind the plunge, the ONS said, as they slashed prices in the face of weakening consumer confidence.



With consumers reining in their spending on all but essential purchases, retailers - part of the UK's powerhouse services industry - have suffered in recent months. The BRC said like-for-like sales in March were down 3.5% - the worst performance since April 2005.



Retailers have issued a string of gloomy updates in recent weeks, with Mothercare, HMV and Currys and PC World parent Dixons Retail all warning on profits, while wine merchant Oddbins entered administration.



Other measures of inflation also dropped today. The headline rate of Retail Prices Index (RPI) inflation, which includes mortgage costs, was 5.3% in March, down from 5.5% in February.



Today's figures will further alleviate pressure to raise interest rates, even though the Bank itself has forecast inflation hitting 5% in the coming months.



Last week, the Monetary Policy Committee (MPC) held interest rates for the 25th month in a row as it faced a challenging mix of soaring inflation and sluggish economic growth.



The UK economy went into a shock 0.5% decline in the final quarter of 2010 and recent surveys of the services and manufacturing sectors have offered a mixed picture of the recovery.



The majority of MPC members believe the inflation surge is down to temporary price shocks and are minded to wait and see how the economy fared in the first three months of 2011 before tightening monetary policy.









Elsewhere, Britain's goods trade deficit unexpectedly narrowed in February to its smallest since February 2010 at £6.8 billion. Economists had forecast a deficit of £8.1 billion.



Philip Shaw, economist at brokers Investec, said today's figures helped "sound the death knell" for a May rate hike.



He said: "Our central view remains that some of the gloom surrounding the economy may lift by the summer and the rates may well rise in August.



"However it is possible that today's inflation figures are the start of a more benign trend and that a hike will not occur until later in the year or perhaps beyond."



The improvement in the rate of inflation weighed on the pound, which dived against most major currencies.



But there was still some upward pressure on inflation last month as transport prices rose 1.2% between February and March, as the conflict in Libya drove up the cost of oil.



The largest contribution came from fuels and lubricants, where pump prices rose 2.7% to reach record levels of £1.32 for petrol and £1.38 for diesel.



Elsewhere, an ONS report said January's rise in VAT from 17.5% to 20% added an estimated 0.76% to the CPI rate in January, almost twice as much as the effect of last year's VAT rise.

Start your day with The Independent, sign up for daily news emails
News
newsAnother week, another dress controversy on the internet
Life and Style
Scientist have developed a test which predicts whether you'll live for another ten years
health
Life and Style
Marie had fake ID, in the name of Johanna Koch, after she evaded capture by the Nazis in wartime Berlin
historyOne woman's secret life as a Jew in wartime Berlin
News
news... and what your reaction to the creatures above says about you
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Telesales & Customer Service Executive - Call Centre Jobs

£7 - £9 per hour: Recruitment Genius: Are you outgoing? Do you want to work in...

Ashdown Group: Finance Manager - Covent Garden, central London - £45k - £55k

£45000 - £55000 per annum + 30 days holiday: Ashdown Group: Finance Manager - ...

Ashdown Group: Systems Administrator - Lancashire - £30,000

£28000 - £30000 per annum: Ashdown Group: 3rd Line Support Engineer / Network ...

Recruitment Genius: Graduate Web Developer

£26000 - £33000 per annum: Recruitment Genius: A Web Developer is required to ...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn