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UK inflation rate has fallen. Here’s why it won’t last long

April 16, 2025
in Business
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UK inflation rate has fallen. Here’s why it won’t last long
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Kevin Peachey

Cost of living correspondent

Getty Images Customer in a bakery pays for something with her card on a reader, while a member of staff looks on. The card reader is on top of a display case filled with baked products.Getty Images

The rate of rising prices – inflation – has eased for the second month in a row, official figures show.

In March, prices rose at an annual rate of 2.6%, far slower than the 11% inflation peak seen in 2022.

Petrol and toy prices have fallen, a relief for drivers and parents, while food prices are unchanged.

However, this data is for last month, and analysts suggest it is the “calm before a storm”.

Exact predictions are difficult, but here are three key areas where inflation is expected to rise.

1. April’s bills and costs

A host of household bills went up at the start of April, on top of continued rent rises.

They included utilities such as domestic energy and water. Council tax also rose significantly for millions of people, and there were hikes for many on phone and broadband contracts, as well as the TV licence.

For businesses, the rise in employer National Insurance contributions in April may have led them to immediately put up their prices.

Some of these increased costs will feed into the next set of inflation data published in May. As a result, analysts think this will see the inflation rate quickly climb over 3% (remember the government and Bank of England’s target is 2%).

After that, there’s significant uncertainty. Commentators suggest inflation may not stay as high, for as long, as previously thought, for reasons we’ll come to next.

2. The Donald Trump tariffs effect

The rollercoaster ride of US tariff policy has dominated the headlines and airwaves in the last few weeks.

The US president announced taxes on goods imported into the US from around the world, then rowed back or delayed many, but doubled down on Chinese imports.

Some countries have hit back with tariffs of their own; others – such as the UK – are trying to negotiate.

We are in relatively unknown territory in modern economics and the picture seems to change almost every day, so predictions have to be taken with a large dose of salt.

In theory, when tariffs are announced, and retaliation comes, then higher taxes all round will make goods more expensive for consumers.

But, particularly for the UK, things are far more nuanced. The 10% tariff on UK goods imported by the US is lower than feared, and retaliation looks unlikely.

Indeed, there are heightened expectations of a UK-US trade deal, rather than a trade war.

So, any price rises would be limited.

China is facing massive 145% tariffs on all its goods bound for the US. If that puts up barriers to the US market, it may find other places to sell its – often cheaply manufactured – products, such as the UK.

A so-called dumping of cheap Chinese products in the UK will increase price competition and could slow the rate of inflation.

3. Performance of the UK economy

Growth in the UK economy has been sluggish for some time, although the latest data was more positive than many had expected.

But, again connected to the issue of tariffs, there are warnings that the improvement in UK economic growth could be short-lived with some even predicting a recession.

That’s not good news for the government, which has made economic growth its priority.

Nor is it good news for workers, whose job security becomes less stable if businesses draw back on investment and start to cut costs.

No job means less money to spend. That would bring down the inflation rate, but would be small mercy to anyone who is suddenly unemployed.

Alternatively, the government’s drive for growth could successfully propel the economy against these headwinds.

And there is even greater pressure on policymakers at the Bank of England to help boost growth by cutting interest rates, lowering the cost of borrowing for loans and mortgages.

Cutting interest rates usually adds to consumer demand, and risks raising prices and the rate of inflation further from its 2% target.

So the Bank’s rate-setters face a delicate balancing act for the rest of the year, starting at their next meeting in May, particularly because nobody is sure how much the tightrope is going to wobble.

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