British inflation drops to lowest level in year

Inflation drops to 2.5% but households still 'squeezed'

Inflation eases back to 2.5% putting May rate rise in doubt

The UK rate of inflation fell back by more than expected in March, helping to reduce the financial pressures on households and making a May rate rise less likely.

The latest United Kingdom inflation data is unlikely to get in the way of a May rate hike, but a further deceleration in core CPI over coming months could prove to be a headache for policymakers later in the year, James Smith, an ING economist, said.

Consumer Price Inflation - the key measure - fell to 2.5% in March, down from 2.7% in February. When the rate of inflation runs above the rate of wage increases, disposable income falls and consumers may need to "tighten their belts", reining in discretionary spending.

Inflation jumped in Britain after June 2016's vote to leave the European Union hammered the value of the pound and pushed up the cost of imports.

United Kingdom inflation slowed to the weakest level in a year in March as the Bank of England prepares to lift interest rates next month.

The Times warns that economists expressed "some concern that wages had not grown as fast as expected" - there had been predictions of a 3% increase.

Job vacancies remained unchanged at 815,000, while the number of self-employed workers fell for the second successive quarter - down by 18,000 to 4.76 million.

The Bank of England expects wages to grow more quickly than inflation later this year.

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Matt Hughes, senior ONS statistician, said: "The labour market continues to be strong and, for the first time in nearly a year, earnings have grown slightly after inflation has been taken into account".

The narrowing of the wage/inflation gap will make a rate hike next month more likely, but the UK's lack-lustre growth mitigates against tightening monetary policy right now.

The Bank of England will raise its key interest rate to 0.75 percent in May, said almost all of 76 economists polled by Reuters, with another 25 basis point rise expected just before Britain is due to leave the European Union early next year.

At the pumps, motorists also faced lower fuel costs last month, with petrol down by 1.6p per litre on the month to 119.2p per litre.

The sharp downward trajectory in inflation could continue, reducing price pressures considerably over the rest of the year.

Month on month, CPI was up just 0.1%, short of forecasts for a 0.3% rise and down from the 0.4% gain in February.

Euro zone bond yields DE10YT=RR extended their falls after the United Kingdom inflation numbers as British gilt yields tumbled.

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