“Today’s data shows that the impact of higher energy prices may have yet to filter through to cause significant domestic price pressures, with both core and services inflation broadly unchanged in March. This should strengthen the case for keeping interest rates unchanged at next week’s MPC meeting. While the Bank will closely monitor underlying price pressures over the coming months, the weak state of the economy could temper any significant acceleration in inflation, allowing the MPC to keep interest rates unchanged in 2026.
“Food price inflation was broadly unchanged at 3.5% in March, but the risk of a renewed pick-up has increased. The conflict in the Middle East has disrupted supplies of key inputs and these pressures may feed through the supply chain over the coming months, leading producers and retailers to pass on the higher costs to consumers.
“Headline inflation increased to 3.3% in March, driven by a sharp rise in fuel prices but we expect it to ease slightly in the second quarter. Oil prices have fallen back from their peak, which could lead to a modest reversal in fuel prices, if they remain around current levels. Meanwhile, the fall in the Ofgem energy price cap will also push down headline inflation in April. Beyond that, the outlook remains uncertain, with the peak impact of the energy shock potentially to come in the third quarter, when the Q3 Ofgem energy price cap reflects the recent rise in wholesale gas prices.”
