UK inflation falls to lowest level since 2021

Inflation now at 3.2%

Written in line with our editorial policy.

UK inflation eased slightly in March,  falling to 3.2% – its lowest annual rate since September 2021. The drop is largely due to food prices, which are rising more slowly than they were a year ago. 

However, despite this latest drop, inflation continues to remain at a higher rate than the Bank of England’s 2% target.

The latest figures for inflation are released each month by the Office for National Statistics (ONS), which compares prices of regularly purchased products with what they were 12 months ago. 

This measure, known as the Consumer Prices Index (CPI), fell from 3.4% in February to 3.2% in March – its lowest level in nearly two and a half years.

A key reason for this is a drop in price for food items. According to the ONS, the most significant rate changes came from bread and cereals, and meat – particularly pork products.

How does inflation affect me?

If inflation is high then it means that your money is not stretching as far as it was a year ago. According to the Bank of England’s target, the rate of inflation should be at 2%. So, although the current rate is lower than it was 12 months ago, 3.2% is still too high. 

If your income is the same as last year, or the rate of increase is less than the rate of inflation, then your standard of living will drop.

Savers will also be affected by inflation if your cash in savings accounts is earning a lower interest rate than the rate of inflation. If it is, you risk the cost of living shrinking the value of your money.

The State Pension, however, rises each year. September’s CPI inflation rate is one of the measures the government uses to decide how much it will rise by. As a direct result of rising inflation, retirees on the full, new State Pension have seen their payments increase to £11,502.40 a year from April 2024.

You can use the Office for National Statistics (ONS) inflation calculator to explore how increases in the cost of living have impacted your finances in the last 12 months.

Does it mean that prices are coming down?

Unfortunately, no. It is important to remember that despite the annual rate of inflation coming down to 3.2%, the cost of living is still increasing – just at a slower rate than it was before. 

So why is everything more expensive now? Well, the main cause of the UK’s recent high inflation has been soaring food and energy bills.

Inflation soared to 11.1% in October 2022, the highest it has been for 41 years, as a result of higher food and energy bills. Gas and oil prices surged in particular when Russia invaded Ukraine, which cut global supplies. The war that broke out in Ukraine also pushed up food prices in the UK, as it reduced the amount of grain for sale globally.

So, while the rate of inflation has fallen since peaking in 2022, prices are still rising each month – just not as quickly as they were.

Will inflation and interest rates continue to fall?

The Bank of England has a target of 2% and has said that it expects inflation to keep falling in 2024. Speaking in Washington earlier this month, Andrew Bailey, Governor of the Bank of England, said: “We are pretty much on track with where we thought we would be. Next month will see quite a strong drop.”

To help meet its target, the Bank of England is using interest rates to reduce the rate of inflation. Higher interest rates encourage people to save more and spend less, eventually bringing down demand and prices. 

The Bank held rates at 5.25% in March for the fifth time in a row, however, some political commentators believe interest rates will start coming down in early summer this year.

Speaking at the time, Bailey said: “We’re not yet at the point where we can cut interest rates, but things are moving in the right direction.”

Sources:

• March 2024 inflation at 3.2%: Inflation and the 2% target. Bank of England. Accessed 25 April 2024.
• Inflation reached 11.1% in October 2022: Cost of living and inflation. House of Commons Library. Accessed 25 April 2024.
• Inflation down largely due to food prices: Consumer price inflation, UK: March 2024. Office for National Statistics. Accessed  25 April 2024.
• Inflation soared after Russia invaded Ukraine: Rising cost of living in the UK. House of Commons Library. Accessed 25 April 2024.

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn