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Inflation in Britain unexpectedly fell in March, official figures showed Wednesday, suggesting that the Brexit vote’s boost to prices is running its course and raising questions in financial markets as to whether the Bank of England will raise interest rates again this month.

The consumer price index in March was up 2.5% compared to the same month a year ago, the Office for National Statistics revealed on Wednesday, down from 2.7% the month before, where it was expected to stay, and the third fall since hitting a peak of 3.1% last November.

Philip Smeaton, chief investment officer at Sanlam UK, adds: “With inflation falling back towards the 2% target and wage growth overtaking inflation for the first time in more than a year, it finally looks like the squeeze on living is easing”. “This rate hike does not signal the onset of a conventional tightening cycle”.

On a monthly basis, house prices edged down 0.1 percent in February. Alcohol and tobacco taxes also didn’t increase as usual after the government changed the timing of its annual budget announcement to the autumn.

At the pumps, motorists also faced lower costs, with petrol down by 1.6p per litre on the month to 119.2p per litre and diesel falling by 1.5p to 122.9p.

Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, says YES. Inflation looks to be falling back as predicted, but with wages picking up and unemployment still falling, it’s possible this tightness in the labour market could eventually push inflation back up.

Given yesterday’s wage growth data, coupled with today’s inflation rate figures, it means the Bank of England is less likely to raise interest rates next month.

Both sterling and United Kingdom gilt yields have initially moved down sharply in response to the data, which are seen as weakening the case for further interest rate rises from the Bank of England (BoE).

The pound tumbled after the data, sliding 0.5% to $1.4217.

Core CPI, which excludes more volatile prices such as for fuel and food, eased down to 2.3% from 2.4%, with the market having expected a slight pick-up to 2.5%. Services inflation was just 2.5 per cent in March, and on its current trend it won’t reach its 3.5 per cent pre-recession norm, required for at-target headline inflation, for another three years.

Source: Click Lancashire

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