Inflation UK: rate falls slightly but still higher than 10 per cent

Nevertheless, it remained higher than experts had predicted as food and drink prices continued to soar.

Economists had forecast inflation would be 9.8% for the month.

The high level of inflation continues to keep pressure on the Bank of England regarding interest rates, with inflation still heavily above the 2% target rate.

The ONS revealed food prices increased by 19.1% year-on-year, the sharpest jump since August 1977.

Bread, cereals and fruit prices increased, while the impact of vegetable shortages also continued to weigh on inflation.

Meanwhile, clothing and footwear prices rose by 7.2% year on year, although this represented a slight slowdown against February’s data.

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Restaurant and hotel prices also continued to rise, at 11.3%, but also saw inflation cool from the previous month.

Increases were partly offset by lower fuel costs, with petrol and diesel costs down 5.9% against the same month last year after prices had spiked following Russia’s invasion of Ukraine.

ONS chief economist Grant Fitzner said: “Inflation eased slightly in March, but remains at a high level.

“The main drivers of the decline were motor fuel prices and heating oil costs, both of which fell after sharp rises at the same time last year.

“Clothing, furniture and household goods prices increased, but more slowly than a year ago.”

Economists have predicted that stubborn inflation will drop more sharply from April amid a decline in energy prices, although the continued price cap at £2,500 annually for a typical home means households will feel little change.

The UK fiscal watchdog, the Office for Budget Responsibility (OBR), last month cut its forecasts for inflation, predicting CPI would end the year at around 2.9%

Chancellor Jeremy Hunt said: “These figures reaffirm exactly why we must continue with our efforts to drive down inflation so we can ease pressure on families and businesses.

However, accountants PriceWaterhouseCoopers (PWC) said that the overall figure hid an inflation rate among food prices of 19.2%, hitting many families hard.

Lisa Hooker, Industry Leader for Consumer Markets at PwC, said: “As expected inflation increases have started to slow with a small decline in the rate to 10.1% in March 2023 versus 10.4% in the prior month driven by fuel and to a lesser extent household goods, clothing and footwear, restaurants and hotels

"The decline in headline inflation was not a surprise, coming a full year after the start of the conflict in Ukraine and immediate knock-on effect onto fuel and energy prices.

"However, falling headline inflation is little consolation for hard pressed consumers facing price rises on everyday goods." 

She added: "Food inflation is remaining stubbornly high at 19.2%. While fresh food price inflation is starting to ease, with less bad news on shortages in areas such as salad vegetables and eggs, overall prices are still increasing at their highest level for over a decade, as manufacturers continue to pass on their costs through the supply chain to end customers.

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"For other categories like fashion, the wettest March in England for over 40 years will not have helped the sale of new season spring/summer ranges which may have explained an increased level of discounting resulting  in the slower inflation last month.  Also hard hit consumers are still cutting back on big ticket household items.

"Looking ahead, we are already expecting April to bring better news, 12 months on from the first big increase in the Energy Price Cap. Critically, in everyday spending categories major supermarkets are starting to cut the price of milk, for example, which was one of the first products to see price rises at the time."

Kevin Bright, partner at management consultants McKinsey, said: "Prices remain stubbornly high – we’ve only fallen back to January’s price inflation rate.

"In short – prices are continuing their steep upward trajectory. In spite of many global commodity prices easing dramatically over the last year, e.g., dairy, vegetable oil and cereals, we’re not seeing this trickle through into the price of products on the shelves.

“Zooming out, the very slight decline in overall inflation reflects the decrease in price of wholesale energy costs. Unfortunately, the downward contribution from motor fuels and liquid fuels is likely to be short lived, given OPEC’s recently announced oil production cutbacks."

He added: “While some price rises are slowing, others are accelerating - food and non-alcoholic beverages prices are running at near record levels with prices up 19.1% year on year.

"And this continues to influence purchasing behaviour, pushing the ongoing migration from fresh to frozen. For example, fresh fish prices are up 19% year on year, compared to frozen seafood up 12.2% year on year.”

“Some categories are settling into mid-single digit inflation levels. But food and non- alcoholic beverages, housing and household services and restaurants and hotels remain at double digit levels.”

“While this slight cooling inflation rate might appear to be putting us on the right path, it is not material given the multitude of other economic factors. Sluggish growth and high interest rates continue to put a downward pressure on margins. This is bearing through in business confidence, with our new research showing 56% of UK B2B organisations believe they’ll be worse off due to the impending macroeconomic climate.""