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UK inflation holds steady in March, set to gather steam in April
April 11, 2017 / 8:36 AM / 3 months ago

UK inflation holds steady in March, set to gather steam in April

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LONDON (Reuters) - British inflation held steady in March due to the later timing of this year's Easter holidays which pushed down airfares, and a dip in global oil prices, but the squeeze on households looks set to resume soon.

Consumer prices increased in March by 2.3 percent compared with a year earlier, the Office for National Statistics said on Tuesday, in line with economists' forecasts in a Reuters poll.

Inflation has accelerated in Britain in recent months, pushed up by a weakening of the pound since last year's decision by voters to leave the European Union, and by the rise in oil prices which has fuelled inflation in other countries too.

READ MORE: Spending by UK shoppers stalls as inflation squeeze intensifies - BRC

With wages growing at the same rate or slightly slower than prices in the shops, many households are facing the prospect of a renewed squeeze on their incomes after a respite when inflation dipped to zero in 2015 and remained low last year.

Earlier on Tuesday, a group representing British retailers said shoppers in Britain clamped down on their spending in early 2017 as the cost of essentials rose.

The ONS data showed food prices rose by an annual 1.2 percent in March, their biggest increase in three years.

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Confronted with the tough outlook for consumers, most Bank of England policymakers have signalled they see no urgency to raise interest rates, even as they predict inflation will peak at 2.8 percent in around a year's time.

March's inflation figures were held down by airfares which fell, a sharp contrast with a jump of more than 20 percent in the same month last year when the Easter holidays fell.

FILE PHOTO: A customer service representative stands in an aisle at a Tesco Extra supermarket in Watford, north of London August 8, 2013.Suzanne Plunkett/File Photo

With Easter falling in April this year, inflation is likely to come under renewed pressure from airfares then.

Also in April, increases in taxes on air passengers and car owners are kicking in and many utility companies are raising their prices too.

Housing costs, which include utility bills, already rose at their fastest pace since November 2014 in March, the ONS figures showed.

Furthermore, economists say the impact of the fall in sterling on inflation will probably be felt more strongly in the coming months. Many expect CPI to top 3 percent before falling back.

Slideshow (2 Images)

The ONS said retail price inflation - tracked by British inflation-linked government bonds and many commercial contracts - dipped to 3.1 percent in March, a bit weaker than forecast in the Reuters poll.

Excluding oil prices and other volatile components such as food, core consumer price inflation slowed to 1.8 percent, also a touch below economists' expectations.

As well as pushing down fuel prices for drivers moderately in March, a fall in international oil prices helped to take some of the steam out of cost growth faced by factories, the ONS data showed.

Prices paid by factories for materials and energy were up by an annual 17.9 percent, slowing from February.

Overall output prices rose by 3.6 percent, also a touch weaker than in February but above a forecast of 3.3 percent in the Reuters poll.

Separately, the ONS said house prices rose by an annual 5.8 percent in February, picking up speed from January and their increase since October.

But house prices in London rose at their slowest pace in nearly five years, increasing by 3.7 percent. Other surveys have detected a weakening of the market in the capital, especially for the most expensive properties.

Reporting by William Schomberg and David Milliken; uk.economics@reuters.com, +44 20 7542 7748

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