UK inflation slows down to 2.6% in March, why it declines and what it means for households

However, experts warn the fall is likely to be temporary, with a sharp rebound expected as higher household bills and business costs kick in this month.

The easing in inflation, measured by the Consumer Prices Index (CPI), is mainly due to falling prices in petrol, diesel, and recreational items such as video games.

The Office for National Statistics (ONS) said petrol prices dropped by 1.6p per litre, averaging 137.5p in March compared to 144.8p a year earlier. Diesel also saw a similar monthly dip and is now 6% cheaper year-on-year.

There was also a slowdown in price increases in the recreation and culture sector, which rose by just 2.4%, the slowest pace in over three years. Items like rice, fish, and jam also saw sharper price reductions.

But not all prices are falling. The cost of clothing and footwear rose again in March, following a brief decline in February, while furniture inflation also crept upward.

Despite the current drop, economists expect inflation to spike again in April, potentially reaching 3.6%, with the Bank of England forecasting a peak of around 3.7% later this year before stabilising around the 2% target into 2027.

That rebound is driven by rising household expenses and increased business taxes. Suren Thiru, economics director at ICAEW, said: “March’s inflation drop is only a temporary reprieve as a hefty increase is nailed on for April, with rising energy bills and surging business costs, including higher national insurance.”

The increase in the energy price cap from April will add an estimated £111 annually to the average household bill, while water bills are also rising by an average of £86 this year under Ofwat's five-year pricing agreement. Meanwhile, most local councils in England have implemented 5% council tax hikes for Band D households starting this month.

Even if income tax rates remain unchanged, employer National Insurance contributions have gone up, affecting business costs. As a result, companies are expected to pass these increases on to consumers through higher prices.

Matt Swannell, chief economic advisor at EY ITEM Club, said: “We expect businesses to pass on some of the increase in labour costs caused by the recent rises in employers’ national insurance contributions (Nics) and the national living wage onto consumers.”

The latest inflation figures may also influence monetary policy. The Bank of England, which has kept interest rates at 4.5%, could move towards cutting rates as early as May, given that inflation is easing and economic concerns persist.

Myron Jobson, senior personal finance analyst at Interactive Investor, said: “A rate cut in May seems increasingly nailed on, and the market has priced in further cuts amid concerns of an economic slowdown triggered by tariffs.”