Inflation eased to a lower than expected 2.6% in the 12 months to March, down from 2.8% in February, according to the latest data from the Office for National Statistics.
The fall was attributed to falling fuel prices. Core inflation, which strips out more volatile food and energy prices, fell to 3.4% in March, down from 3.5% in February, while services inflation slowed to 4.7%, down from 5%.
Meanwhile, the Retail Prices Index (RPI) measure of inflation, which includes housing costs, edged down to 3.2% in the 12 months to March, down from 3.4% in February.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “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 means 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.
“Of course, given the current US Administration’s unpredictable policy-making, none of this is nailed on. It means when anyone is making decisions about saving or borrowing, while they will want to have one eye on likely rate movements, the key will be to focus on their own needs, and what will be right for them, regardless of what happens in the wider world.”
What inflation means for you
When inflation rises, this pushes up the cost of living for households, making it more difficult for those on low incomes to make ends meet. News that it has fallen to 2.6% in the year to March is therefore welcome, especially as it is creeping further towards the government’s 2% target.
Wage growth continues to outstrip the rate of inflation, with average weekly earnings including bonuses 5.6% higher in the three months to February compared to the same period a year earlier.
Jonathan Moyes, Head of Investment Research at Wealth Club, said: “The UK economy is not out of the woods yet. There is a long and swinging road to reach the Bank’s 2% target. Services inflation remains stubbornly high, largely due to higher housing costs (higher rents and council tax). The rise in the energy price cap is also set to see inflation jump in April.
“Whisper it quietly, though, were it not for a global trade war, the UK consumer would be in excellent shape. Wage growth is running at 5.6%, a further three interest rate cuts this year will drive mortgage rates lower; food inflation is slowing, as is eating out and travel. Plus, with the oil price in the low 60s, energy prices look to have peaked. If the UK can escape the worst of the global trade war, it might not all be doom and gloom for the UK consumer this year, and we haven’t said that for a while.”
Inflation and your pension
September’s inflation number is usually considered the most important inflation rate of the year for those reliant on the State Pension. That’s because the increase in prices over the year to this point is usually used to calculate the rate at which certain allowances and benefits, including the State Pension, are increased the following April.
Under the ‘triple lock’ guarantee, the State Pension is guaranteed to rise by the highest of September’s inflation figure, earnings growth, or 2.5%. Earnings figures for the three months to July are used for the yearly increase, and given that these stood at 4.1%, that means that the State Pension increased by this amount in April, meaning an annual rise of around £473 for those receiving the new State Pension and £361 for those on the basic State Pension. You can find out more about this in our guide What is the pension triple lock?
However, March’s inflation figures will still have an impact on pensioners, who often have to get by on low incomes.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Inflation has fallen again but the expectation is that from here it will start to rise. We might not see it reach the highs of the recent past, but it shows the difficulties faced by people on a budget trying to make their money last when costs get higher.
“Those in the market for a guaranteed income face some tricky choices. We’ve seen incomes for single-life level annuities soar in recent years. The most recent data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,685 per year from a single life level annuity with a five-year guarantee. However, this income won’t rise from this level.
“You can get inflation-linked products, but the starting income is much lower – one that rises by 3% per year is currently offering £5,605 per year. Retirees need to think carefully about what choice is in their best interests. The inflation-linked product will rise, but it could take many years before it reaches the amount offered by the level product.
“The prospect of looming inflation also brings the chance of further interest rate cuts, and these could bring further decreases in annuity incomes. It’s already been a bumper period for annuities, but this could be enough to make others who have been mulling the prospect take the plunge.”
If you want to learn more about the impact of inflation on your retirement savings, read our article How does inflation affect my pension?
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
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What does it mean for interest rates?
The Bank of England raised the base rate 14 consecutive times since December 2021 to try to dampen inflation, and made its first base rate reduction for over four years in August 2024, taking the rate from 5.25% to 5%. This was followed by a further quarter-point cut in November 2024 and another in February 2025, which means the base rate is currently at 4.5%. The base rate was held at this level in March, although many are expecting a cut in May.
This would be positive news for homebuyers and homeowners, with lower rates already starting to emerge.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The Trump tariff turmoil has already started feeding through into lower rates, as the mortgage market tends to move faster than savings. Moneyfacts figures show the average two-year deal is now 5.27% – compared to a month ago when it was 5.33% and a month earlier when it was 5.42%. There are super-competitive deals around below 4% now, which is a world away from the rates we’ve seen in recent years.”
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
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If you’re worried about a potential payment shock when your current mortgage deal ends, read our articles When is the best time to remortgage? and Are you one of 1.6m homeowners facing a mortgage timebomb?
Impact on savers
If you’re trying to save so that you have a financial buffer in place to cover rising costs, our articles How to build an emergency fund and Best instant access savings accounts may come in handy. Fortunately, savings rates remain competitive, so there are still plenty of providers offering inflation-beating returns.
Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group, said: “While the weather’s been picking up, inflation has been cooling down, falling to 2.6% in March. Unfortunately, this might be the last of the good news, as the impact of a tumultuous April kicks in next month – energy price rises and other bill increases combined with the impact of tariff turmoil all look set to make their mark.
“While these economic conditions are still evolving, markets are still anticipating a cut to the base rate at next month’s MPC meeting. While this will be welcomed by borrowers and mortgage holders, it will mean lower interest rates for savers. With the possibility of inflation rising once April price rises are factored in, shopping around for the best rates remains crucial in order to avoid losing returns on savings.
“For those more comfortable with taking on risk, investing can provide the potential for higher long-term returns and, if your finances allow, you might be in a position to take advantage of the current lower market prices, though investing comes with no guarantees. Irrespective of market conditions, pensions remain one of the most tax-efficient ways to save, combining benefits of possible investment growth, employer contributions and tax efficiency, making them a compelling option for long-term savers.”
You can learn more about inflation and the impact it has on your finances in our guide What does inflation mean for my money? If you’re looking for ways you might be able to reduce your outgoings, read our articles How to save money – 21 money saving tips and Seven ways to save on your household bills.
Free financial support services
Millions of people are struggling financially at the moment, and although inflation is easing, many are still finding it difficult to manage their outgoings.
If your debts are starting to spiral out of control, contact Citizens Advice to help you find a way forward. You can speak to an advisor through its national phone service Adviceline on 0800 144 8848 if you’re in England, 0800 702 2020 if you’re in Wales, 0800 028 1456 if you’re in Scotland and 0808 223 1133 if you’re in Northern Ireland. Alternatively, contact any of the following specialist debt advice charities:
- National Debtline (telephone 0808 808 4000)
- Debt Advice Foundation (telephone 0800 043 4050)
- StepChange (telephone 0800 138 1111)
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