ECONOMIC WATCH: BRITAIN'S INFLATION SLOWS MORE THAN EXPECTED, BUT PRICE PRESSURES LOOM

By Xinhua writer Zhang Yadong

LONDON, April 20 (Bernama-Xinhua) -- Britain's Consumer Price Index (CPI) slowed more than expected in March, offering temporary relief from inflation, but signs point to renewed price pressures ahead, Xinhua reported.

According to data released by the Office for National Statistics (ONS) earlier this week, the CPI fell to 2.6 per cent in March, down from 2.8 per cent in February and below market expectations of 2.7 per cent. The agency attributed the moderation in inflation mainly to a fall in prices related to entertainment, culture and games.

Despite the slowdown, some banks are raising savings rates. The National Savings and Investments, the British government savings bank, has increased its 2-year bond interest rate from 3.6 per cent to 4 per cent, and its 3-year bond rate from 3.5 per cent to 4.1 per cent.

However, analysts widely see March's inflation drop as temporary. Starting April, a wave of price increases, including hikes in water bills, council tax, communication fees and energy prices, is expected to push inflation back up.

The ONS noted that higher household bills will possibly reverse the current trend. Last year, water regulator Ofwat announced that average household water bills in England and Wales would rise by 36 per cent over the next five years, amounting to an increase of more than £10 (about US$13.3) per month.

Meanwhile, energy regulator Ofgem has raised the domestic energy price cap by 6.4 per cent since April 1.

Reflecting on this outlook, many industry bodies and research institutions believe that the March slowdown will not last.

"Inflation is expected to lift sharply next month with the rise in the Ofgem price caps," said Anna Leach, chief economist at the Institute of Directors.

Echoing this view, Kris Hamer, director of research at the British Retail Consortium, said, "The slight easing in inflation in March will prove to be largely insignificant once the figures for April are released next month."

Markets now anticipate that British inflation in April could exceed 3.5 per cent, reversing the easing trend seen over the past two months. The Bank of England has forecast that CPI could rise to 3.75 per cent by the third quarter of this year.

In light of the current data, some analysts believe the bank may still proceed with a rate cut in May. March inflation came in lower than expected, potentially opening a window for policy easing.

However, any rate cut is likely to be modest. A 25 basis point cut is currently expected, with the bank maintaining a cautious stance. Martin Sartorius, principal economist at the Confederation of British Industry, expects the bank to continue its "gradual and careful" approach to reducing borrowing costs amid an uncertain economic environment.

Adding to that uncertainty is the potential impact of US tariffs. Leach noted that ongoing tariff-related disruptions have added fresh uncertainty to Britain's inflation and interest rate outlook. She explained that tariffs could weigh on the British economy by dampening global growth and increasing market volatility. As a result, Britain may see more interest rate cuts than previously anticipated, offering some much-needed support to the economy.  

-- BERNAMA-XINHUA