Inflation falls for the second consecutive month, expectations for Bank of England interest rate cuts rise

According to Zhitong Finance APP, UK inflation has fallen for the second consecutive month, providing some relief to British households before a significant rise in bills this month. The Office for National Statistics (ONS) announced on Wednesday that the Consumer Price Index (CPI) rose by 2.6% year-on-year in March, slowing from a 2.8% increase in February. This is the lowest inflation rate since last December and below the 2.7% predicted by economists and the Bank of England. The ONS stated that the slowdown in inflation was due to falling prices for computer games, lower fuel prices, and stable food prices. The inflation rate in the services sector decreased from 5% to 4.7%, while the Bank of England's previous expectation was 4.9%. The Bank of England closely monitors service sector inflation for signs of domestic price pressures. UK inflation rate for goods and services decreased in March The slowdown in inflation may provide some comfort to UK consumers. From the fiscal year starting this month, consumers will see basic costs, including council tax and energy and water bills, rise by an average of £600 ($795.81). Inflation is expected to be well above 3% by this summer. However, for the Bank of England, any rebound in inflation will be overshadowed by the impact of the trade war initiated by US President Donald Trump. Traders increase bets on Bank of England interest rate cuts The chaotic tariff policies in the US have tightened financial conditions, leading to a decline in energy prices, a weaker dollar, and a bleak outlook for global economic growth, prompting traders to bet that the Bank of England will further cut interest rates—including a 25 basis point cut at the May 8 meeting. Zara Nokes, a global market analyst at JP Morgan Asset Management, stated: "The risks of inflation certainly have not disappeared, but the Bank of England now needs to weigh the upside risks of inflation against the downside risks to economic growth. If the labor market shows significant deterioration after the increase in employer National Insurance contributions this month, the pressure on the Bank of England to intensify rate cuts will only increase." After the inflation data was released, the pound maintained its upward trend against the dollar, rising 0.3% to 1.3273. Previously, the pound had reached a six-month high against the dollar at 1.3289, on track to achieve the longest consecutive rise since last July. UK Chancellor of the Exchequer Rachel Reeves stated after the inflation data was released: "The inflation rate has fallen for two consecutive months, wage growth is outpacing price growth, and positive economic growth data are all encouraging signs that our reform plans are working, but there is still much work to be done." Amid the market turmoil triggered by Trump's tariff policies, Bank of England officials do not agree with the view that tariffs will suppress UK inflation. In recent weeks, Bank of England officials Sarah Breeden and Megan Greene have both stated that the impact of US tariff policies on prices remains unclear and emphasized that currency market trends are equally important for the outlook. Bank of England policymakers also have to address the issue of a cooling labor market Private sector forecasters are more boldly predicting that U.S. tariffs will mean lower inflation in the UK later this year. In recent weeks, major banks, including Goldman Sachs and Deutsche Bank, have lowered their expectations for UK price growth. Investors have also increased their bets on a faster rate cut by the Bank of England, expecting at least three more rate cuts this year, each by 25 basis points. KPMG's Chief Economist for the UK, Yael Selfin, stated: "If underlying inflationary pressures continue to ease, the deflationary impact of tariffs may provide the Bank of England with greater room to cut rates."