Major supermarket chains offering huge discounts also meant that the headline rate of inflation, as assessed by the consumer prices index (CPI), came in at a much lower rate than expected at 4pc for March.
The rates are still double the Bank of England’s 2pc target, but the latest figure was well short if the consensus prediction that the rate would linger at February’s 4.4pc, a 28-month high.
The levels of inflation are measured by the retail prices index (RPI) which takes into consideration mortgage costs which were seen to fall from 5.5pc to 5.3pc.
The figures are much better than experts anticipated, even despite the continued sharp rises in global oil and commodity prices. David Kern, chief economist at the British Chambers of Commerce said: “The fall in inflation points to sharp competitive pressures in the high street, and confirms our assessment that businesses are unable to increase prices while disposable incomes are being squeezed.”
The Bank’s decision to freeze interest rate increases “until the recovery is more secure” is supported by these latest figures according to Mr Kern. It seems he also has investors on his side as many pushed back their expectations of when the Monetary Policy Committee will eventually raise the base rate from 0.5pc.
Research showed that more than half of the slowdown in inflation was due to food and non-alcoholic drinks where shops experienced a record price drop of 1.4pc in just a month as many drastically cut their prices, according to the Office for National Statistics.
The price cuts saw the price of fruit fall 4.7pc month on month, which was a record for that time of year, while prices of bread and cereals were down 2.6pc, a figure that was the biggest ever monthly fall.
Monthly trade figures were also better than most expected, which supported the hopes that trade did not drag on GDP growth during the last quarter.
Experts believe that the changes to rates are a positive effect on the recovery on the economy. Nida Ali, economic advisor to Ernst & Young’s ITEM Club summarised by saying: “The rebalancing of the UK economy towards exports seems to be on track.”
References:
Office for National Statistics
Monetary Policy Commitee
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