CPI inflation came in 0.1% below expectations at 2.6% in March – down from 2.8% in February and 3% in January.
On a monthly basis inflation was 0.3%, down from 0.6% a year earlier.
Core CPI, which excludes energy, food, alcohol and tobacco, was 3.4%, down slightly from 3.5% in February.
However, industry experts note that falling inflation is likely to be short-lived, with the Bank of England itself forecasting a significant jump back up next month.
The inflation rate is expected to jump to 3.6% when April's data is released next month and could hit 3.75% in Q3, according to the Bank's predictions.
In addition, industry experts predict that although a base rate cut is now certain next month, mortgage rate cuts are less so.
Sarah Coles, head of personal finance at Hargreaves Lansdown, commented: “Like an inattentive driver in rush hour traffic, inflation has hit the brakes again, falling to 2.6% in March. But the rough ride isn’t over. Once the price rises of Awful April kick in, we can expect it to accelerate sharply again. The Bank of England has forecast that it’ll hit around 3.75% in the third quarter of 2025. But with Trump’s tariffs driving the future of the global economy, we can’t be completely certain what direction we’re heading in and how fast we’re likely to go.
"In normal times, the threat of rising prices in the coming months would raise expectations that the Bank of England might hold rates for a while, until inflation was under control – but there’s nothing normal about this period.
"The global economic turmoil caused by Trump’s tariffs mean it’s difficult to predict exactly where inflation is going to take us in the near future. However, prices are unlikely to be the Bank’s overriding concern at the moment, because looming potential tariffs have set off a cacophony of alarm bells over global growth. Central banks around the world will be keen to keep rates as low as possible to help support any possible growth. As a result, the markets are pricing in three or four more rate cuts from the Bank of England this year – with the first expected in May."
Peter Stimson, head of product at MPowered Mortgages, said: “In an age of global uncertainty, sure bets are vanishingly rare. But today’s inflation data has created one - that the Bank of England will cut its base rate next month.
“With both headline and core CPI easing off in March, the Bank’s ratesetters no longer have a reason not to cut when they meet on 8th May, and plenty of reasons to do so.
“CPI is still well above its 2% target, and in normal times there would be a genuine debate among members of the Bank’s ratesetting committee about whether a rate cut might be delayed in order to push inflation down further.
“But these are not normal times, and the committee will instead park its concerns about inflation to focus on shoring up the economy from the recessionary juggernaut fuelled and dispatched by the White House.
“However May’s all-but-certain base rate cut is unlikely to translate into a further wave of mortgage rate cuts next month.
“The reason for this is that mortgage lenders price their fixed-rate loans according to swap rates, which are a forecast for the future course of the base rate, rather than the base rate of the day.
“Swap rates have fallen since Donald Trump’s ‘Liberation Day’ tariff announcement two weeks ago, and many lenders have responded by cutting their mortgage rates accordingly. In other words, they have already ‘priced in’ a base rate cut in May and may not have scope to reduce their rates again so soon.
“At present the swap rates imply that the base rate will be cut twice more this year after May. In theory that would see the base rate go below 4% by Christmas, but Donald Trump’s disruptive power means much could change between now and then.”
Derrick Dunne, CEO of YOU Asset Management, added: “Slowing inflation for March, taken in isolation, is good news and reaffirms the potential for rate cuts to come through over the next few months. Indeed, it comes in below expectations and delivers a lifeline to the Bank of England - potentially stiffening rate setters’ resolve to deliver a cut in May.
“However, these figures bely other issues which are yet to feed through to the numbers. It is now very likely we could see a significant jump back up next month according to the Bank of England’s own forecasts.
“Regardless, all eyes will now be on the MPC and whether it decides to ‘look through’ the inflation outlook and base its cuts on the economic situation. Wages are still growing strongly, which puts a potential spanner in the works, but the economic backdrop of international turmoil might just spur some pre-emptive action. The market is certainly priced for this outcome on 8 May.
