News of falling inflation rates were a welcome boost to households across the UK this week, down to 2.6 per cent in March to mark a second consecutive drop.
With the Bank of England’s (BoE) target being a two per cent inflation rate, it appears on first glance that all is on track to reach that level – yet most economists forecast an impending rise in the next set of data, with levels predicted to rise to at least 3.5 per cent again across summer.
Beyond that it’s still uncertain, given global trade worries could cause supply chain issues that worsen demand, but what does a falling inflation rate for now mean for your money – and what is ahead for it next?
Why will inflation rise again?
While inflation has dropped for both February and March data, April’s set of numbers are likely to contain some notable changes.
Domestically, businesses had the rise in labour costs to contend with, with National Insurance and minimum wage both increasing – while internationally, the advent of Trump tariffs kicked in from early April, and so disruption caused by that will begin to be seen too.
Matthew Allen, economics expert at the University of Salford, said council tax, water bills and energy prices have all risen by over 5 per cent, “meaning that many families will still feel financial pressure despite the overall decline in inflation.”
The ONS has also forecast that inflation won’t fall to below two per cent until at least 2027.
Fuel
The cost of oil has generally dropped across the board of late – crude oil is down more than 13 per cent since the start of 2025 on the commodities markets and European natural gas is down around 25 per cent.
In the US the focus has been on lowering oil prices this year and that, over time, means the cost at the fuel pump goes down.
Jonathan Moyes at investment firm Wealth Club said that with the oil price “in the low 60s [dollars], energy prices look to have peaked.”
Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
“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,” he said.
Groceries
Food inflation is certainly slowing but in terms of individual supermarket items, it’s worth bearing a few things in mind.
First is that food inflation was always predicted to peak later in the summer – the Food and Drink Federation (FDF) told The Independent that four or five per cent was likely in the second half of the year, even before wider tariff-related concerns which might have their own inflationary results.
Secondly, the ongoing supermarket battles for customers means price-matching deals can skew where cuts are made – just because the wholesale price of one item comes down (or goes up), it doesn’t necessarily mean that’s exactly where you’ll see in-store price cuts (or rises).
Still, grocery bills not shooting up should be welcomed. A new survey by consumer research specialists Maru said more than two thirds (68 per cent) of Brits were considering switching their food shopping to a lower-priced supermarket.
Interest rates
Inflation has a big say in what the BoE decide to do with interest rates – and it now looks as certain as can be that the base rate will be cut on 8 May.
That means variable rate loans or saving rates will decline, and companies may be boosted to promote investment or expenditure.
Most analysts predict three rate cuts this year and it’s possible we see back-to-back cuts too.
Mortgages
One area which might not immediately benefit from an interest rate decline is in mortgages.
While the base rate definitely impacts where lenders price their products, the mortgage market largely operates on swap rates: future forecasts of where the base rate will be, rather than the already-existing base rate.
“May’s all-but-certain base rate cut is unlikely to translate into a further wave of mortgage rate cuts next month,” said Peter Stimson at MPowered Mortgages.
“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.”
Even so, additional future cuts could still mean mortgage repayments come down significantly across the entire course of the year.
