THE Trades Union Congress urged the Bank of England to hold off on another rise in UK interest rates after official data yesterday showed annual inflation fell unexpectedly to 2.5 per cent last month, from 2.7% in February.

Annual UK consumer prices index inflation remains significantly above the 2% target set for the Bank of England by the Treasury, but has fallen sharply from 3.1% in November last year. The annual CPI inflation rate in November was the highest since March 2012.

Economists had predicted that annual CPI inflation would have remained at 2.7% last month.

TUC General Secretary Frances O’Grady said: “Wages are still worth less than before the financial crisis, leaving many working people struggling to get by. A hike in interest rates is the last thing they need, and the fall in inflation shows the Bank of England should hold off.

“What people really need is higher wages, not higher interest rates. It’s time for a new deal for working people that makes wage growth a much higher priority.”

Sebastian Burnside, chief economist at Royal Bank of Scotland, said: “The squeeze on households is easing. Inflation fell to 2.5% in March, down from 2.7% in February. So with wage growth heading up towards 2.9% we have finally escaped a year-long period of falling real wages.”

He added: “Cheaper clothes and an absence of tax rises on alcohol and cigarettes helped pull down inflation last month, but the bigger picture is about the currency. Sterling’s fall following the EU referendum pushed up prices by making imported goods more expensive, but it didn’t happen overnight. The price rises faced by producers peaked in January this year and now they are passing only smaller rises on to consumers.”

The Bank of England raised UK base rates by a quarter-point from a record low of 0.25% in November. This was the first rise in rates for more than a decade.

The City expects a further quarter-point rise when the Bank publishes its latest quarterly inflation and growth forecasts next month.

Mr Burnside said: “With UK unemployment heading even lower, to just 4.2%, the prospects for wages continuing to beat price rises are good.

“So good that the Bank of England may feel households are likely to be in a stronger financial position in the future and therefore well able to cope with rises in interest rates. We’ll find out whether the MPC thinks the time is right for another rise next month.”