Tell us what you think
We want to know what you think will happen in tomorrow's report. Will the headline rate of inflation rise, hold steady, or fall?
That concludes our live coverage for today but we will be back tomorrow, bright and early. Join us when the inflation report drops at 7.00am.
The path of UK inflation
The below chart shows the path of UK inflation over the past four years, and includes Bank of England projections for the next few months (March 2025 to June 2025). Projections are illustrated with the dotted line.
As you can see, inflation peaked at 11.1% in October 2022. The rate of price increases is not expected to hit that level again any time soon – at least not unless the economy faces another serious shock event like Covid.
However, prices are expected to creep up at a faster pace over the coming months. The inflation rate is expected to hit 3.6% when April's figures are published next month. By the third quarter of the year, the Bank of England said the headline rate could even hit 3.75%.
How many times will the Bank of England cut interest rates this year?
Most economists expect at least two more rate cuts from the Bank of England before the end of 2025.
- Capital Economics thinks rates will be trimmed by 25 basis points in May, followed by a further 25 basis-point cut in November. This would take the base rate to 4% by the end of the year.
- Financial institution ING is forecasting quarterly cuts. This would mean three more cuts in 2025 (we already had one in February), bringing the base rate to 3.75%.
- Deutsche Bank on the other hand is expecting four, taking the base rate to 3.5%.
The Bank of England has been clear that it will assess things on a meeting-by-meeting basis, taking a “gradual and careful approach”.
Rising cost of employment is a “major challenge” for businesses – will it translate into higher prices?
Businesses are being hit with higher costs from every angle. The recent increases to National Insurance and the minimum wage have added to their wage bills considerably, with the British Chambers of Commerce (BCC) calling it a “major challenge”.
Jane Gratton, the BCC’s deputy director of public policy, said it will be “some time” before we fully understand the true impact of these increases on jobs and investment. But some businesses have warned that it could translate into price rises and layoffs.
A survey of 52 leading retailers, conducted by the British Retail Consortium (BRC) earlier this year, suggested as many as two-thirds of businesses could look to raise prices to help offset the cost of the NI increase.
Around half of businesses said they would look to reduce hours and overtime or staff headcount.
UK labour market is weakening
Let’s turn our attention to the latest labour market data, published by the Office for National Statistics (ONS) today. The report showed some signs that the labour market is continuing to weaken.
On the one hand, regular wage growth and the unemployment rate both held steady in this month’s report, at 5.9% and 4.4% respectively.
On the other hand, job vacancies fell to 781,000, down from 816,000 previously, suggesting businesses are putting a pause on hiring. The number of payrolled employees also decreased by 78,000 in March, based on early estimates.
Going forward, the unemployment rate is likely to rise. Deutsche Bank expects it to pick up to 4.5% in next month’s report.
“Importantly, updated DWP advanced redundancy notifications data has spiked in recent weeks suggesting more job losses in the coming weeks and months,” said Sanjay Raja, chief UK economist at the investment bank.
Evidence of a weaker labour market could open the door to a rate cut from the Bank of England in May.
Capital Economics: “The US trade war may prove disinflationary for the UK”
Consultancy Capital Economics points out that a trade war could result in weaker global demand. This “raises the chances that inflation will be lower in the medium term,” said Ruth Gregory, deputy chief UK economist at the consultancy.
Currency dynamics could also play a role. Until recently, Capital Economics thought US tariffs would cause the pound to weaken against the dollar but, so far, it has remained stable. A stable pound should “limit the upward effects” of higher import prices on UK inflation.
On top of this, the dumping of goods originally intended for other economies could push UK prices down.
“With China currently facing much higher tariffs than we had anticipated, products originally intended for the US market may end up in the UK at lower prices than similar products already available,” Gregory said.
If the UK government decides to retaliate against the US with harsh tariffs of its own, that could prove inflationary – but it seems unlikely. Prime minister Keir Starmer has been clear that “a trade war is in nobody’s interest”.
How will Trump’s tariffs impact inflation?
The Bank of England’s inflation forecasts (summarised in our previous post) were published before Donald Trump’s latest round of tariffs. It is too early to know exactly what impact tariffs will have on UK inflation and interest rates, but they could change things.
While tariffs make goods and services more expensive (by adding a tax which is ultimately passed on to consumers), they also tend to slow economic growth. A slowdown in growth can be disinflationary.
When managing the impact of tariffs, the Bank of England will need to weigh growth considerations against inflation considerations. Cutting interest rates would help support economic growth, but could allow prices to rise further.
A lot will depend on the scale of the tariffs that are ultimately imposed and how countries around the world retaliate. For now, Trump has paused most of the harshest measures.
More to follow.
The calm before the storm?
Tomorrow’s slowdown is likely to be short-lived, if it materialises. After slowing to around 2.7% in March, the Bank of England expects inflation to pick up to 3.6% in April. It said price rises could ultimately hit 3.75% in the third quarter, driven by higher energy prices.
“Although global energy prices have fallen back recently, they remain higher than last year and CPI inflation is still projected to rise to around 3¾% in 2025 Q3,” the Bank wrote in a summary statement after the March MPC meeting.
Inflation expected to slow to 2.7%
The Bank of England expects inflation to slow to 2.7% tomorrow, according to forecasts published in its latest quarterly monetary policy report.
The economists at Pantheon Macroeconomics agree. They said a drop in motor fuel prices should contribute to the slowdown, as well as “distortions from last year’s early Easter”, which are expected to reduce services inflation by 10 basis points.
Pantheon expects services inflation to come in at 4.9% in March, down from 5% in February. It expects core inflation to hold steady at 3.5%.
Hello and welcome. Tomorrow is inflation day.
A lot has happened since we last reported on consumer prices. The Spring Statement, April price hikes, a new tax year, and the small matter of a US trade war and stock market crash.
Hang onto your hats, as more volatility almost certainly lies ahead. Trump doesn’t appear to be done with tariffs, and here in the UK, we are yet to see the full effects of recent tax changes on economic growth.
In the world of inflation, prices are expected to hit 3.75% later this year, but the good news is that a drop in the headline rate is expected tomorrow. This could strengthen the case for an interest rate cut when the Bank of England next meets in May.
Stick with us today for the latest forecasts and analysis, before rejoining us tomorrow for live reporting when the inflation data is published at 7am.
