March 2025 UK Inflation: A Welcome Cooling

Headline prices rose 2.6% YoY last month, cooler than both market expectations, and the BoE's forecasts. Meanwhile, excluding food and energy, core CPI rose by 3.4% YoY over the same period, while the closely watched services CPI metric rose 4.7% YoY, also cooler than the Bank's expectations, and the lowest level so far this year.

This latter print is of particular importance, given the Bank of England's well-telegraphed focus on the risks of inflation persistence, and ongoing concern, particularly among the MPC's hawks, over the potential of stubborn price pressures becoming embedded within the UK economy. Concerns which may now begin to subside, though the trend in data is of course more important than just a single print.

On the whole, though, today's figures do little to materially shift the policy outlook for the 'Old Lady'. A 25bp cut at the next meeting, on 8th May, remains pretty much a certainty, though the pace of easing beyond then is likely to remain relatively gradual, with further cuts likely to be delivered on a quarterly basis, particularly with headline inflation still on a trajectory towards the 4% mark during the summer.

Nevertheless, risks to this outlook tilt firmly in a more dovish direction, amid mounting downside growth risks, stemming primarily from the tariffs imposed by President Trump. Were policymakers to become increasingly confident that those risks of inflation persistence had abated to a sufficient degree, a more rapid pace of policy normalisation could be on the table, though the bar for the Bank to deliver cuts at consecutive meetings still seems to be a relatively high one for the time being.