The Office for National Statistics (ONS) announced that inflation sits at 3.2% for the year to March 2024, a 0.2% reduction from February's figure. While the CPI (Consumer Price Index) figure of 3.2% is higher than expected - the market expected it to fall to 3.1% - the figure reflects the continued slowing of price rises. However, higher-than-expected inflation figures could signal a change to when interest rates start to get cut, with market economists predicting a more cautious approach from the Bank of England (BoE).
What is behind March's inflation figure?
March's inflation figure of 3.2% is the lowest since September 2021 with a peak of 11.1% recorded in October 2022. While it is welcome news that inflation is falling, this doesn't mean that households will be spending less as the cost of goods and services is still rising, albeit at a slower pace.
The latest ONS figures showed that food price falls for items including crumpets, chocolate biscuits and meat helped to offset the increase in fuel prices in the year to March. The average price of petrol and diesel rose by 2.6p and 2.8p respectively, meaning the average cost of a litre of petrol in March was £1.45 with diesel costing £1.54.
Consumers will also have seen a reduction in the cost of household goods and furniture which fell by 0.9%, the first fall recorded for these types of items since December 2020. At the same time, housing and household services inflation increased by more than it did in the year to February and the average rent in England rose by 9.2% to £1,285 from a year ago.
Inflation predictions for April's figures
Inflation is expected to fall again in April, mostly, due to the reduction in the energy price cap, lowering gas and electricity bills for UK households. Some market experts are predicting a fall below the target level of 2%. However, the increase in minimum living wage which came in on the 6th of April this year may have some contrary effects to inflation which remain to be seen. The next Bank of England base rate review will take place on the 9th of May with the Monetary Policy Committee (MPC) expected to vote to keep the current rate at 5.25%.
How will this affect savings rates?
Savings rates are likely to remain unchanged assuming the Bank of England's base rate remains at 5.25%. Savers with deposits earning little interest should consider moving them to accounts offering higher rates of interest wherever possible as this will help to offset the negative impact of inflation. You can find the latest savings rates available on a variety of different types of savings accounts in our articles, "Best savings accounts in the UK" and "How to get more than 5% interest on your savings".
What is likely to happen to mortgage interest rates?
The Bank of England's base rate is unlikely to see any cut until September or maybe even November this year, whereas market experts had predicted it to happen sooner. Borrowers are therefore unlikely to see any significant improvement in mortgage interest rates until the early part of 2025.
Although the mortgage rate cuts have slowed in recent months, lenders such as TSB and Santander are still announcing cuts to rates on mortgage products for homebuyers as well as those looking to remortgage. You can search mortgage deals from across the market using our mortgage rate comparison tool or speak to a mortgage expert* to get guidance on the best course of action for your specific needs and circumstances.
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