UK inflation slowed to a one year-low in March, diminishing scope for a rate hike in May as markets widely expect.
Consumer prices climbed 2.5 percent year-on-year in March, slower than the 2.7 percent increase posted in February, the Office for National Statistics said Wednesday.
Inflation was forecast to remain unchanged at 2.7 percent. This was the weakest rate since March 2017, when prices gained 2.3 percent.
The slowdown was largely driven by the weak growth in women’s clothing cost. Moreover, the tobacco duty increased in March 2017, but there was no corresponding increase this year due to the change in budget cycle.
In February, the Bank of England had projected inflation to remain close to 3 percent in the first quarter and signaled somewhat earlier- and deeper-than-expected rate hikes.
The latest UK inflation data is unlikely to get in the way of a May rate hike, but a further deceleration in core CPI over coming months could prove to be a headache for policymakers later in the year, James Smith, an ING economist, said.
Core inflation that excludes energy, food, alcoholic beverages and tobacco, slowed to 2.3 percent from 2.4 percent a month ago.
Month-on-month, overall consumer prices edged up 0.1 percent in March, slower than the expected 0.3 percent.
Another report from ONS showed that the factory-gate inflation was the weakest in 17 months in March.
Output price inflation slowed to 2.4 percent in March from 2.6 percent in February. A similar weaker rate was last seen in November 2016, but it was slightly faster than the forecast of 2.3 percent.
Meanwhile, input price inflation accelerated to 4.2 percent from 3.8 percent in February. The expected rate was 4.3 percent.
On a monthly basis, output prices climbed 0.2 percent after staying flat in February. At the same time, input prices dropped 0.1 percent after falling 0.4 percent a month ago.