Today the Bank of England’s own inflation rate forecast, for March, fell to 2.6%. The Office for National Statistics (ONS) taking the lead in releasing this very positive data. This drop is bigger than the forecasted 2.7% decrease by economists surveyed by Reuters. Policymakers at the Bank of England will be watching the recent numbers with great interest. They’re hoping to make a big splash at their next meeting on May 8, when they expect to be talking about interest rate cuts.
While inflation may have come down over the last few months. On an annual basis, that rate peaked earlier this year at 3% in January before falling back down to 2.8% in February. The biggest downward movers of this monthly change came from recreation and culture, and motor fuels. But apparel became a key countervailing force pushing the inflation rate higher.
After a tumultuous start to the year, in February the British economy roared back to life, growing by 0.5% month-on-month. The bottom line The economic data is unambiguously positive. Worries about the impact of global trade policies and U.S. tariffs imposed by President Donald Trump persist. The same way U.K. gov’t make best of Trump’s tariffs As it stood, they were staring down an automatic 10% base duty on any imports to the United States.
Policymakers at the Bank of England now find themselves in a brave new world. They’ve been especially concerned by what has become a deeply engrained global trade policy uncertainty and ongoing geopolitical strife. “Global trade policy uncertainty has intensified, and the United States has made a range of tariff announcements, to which some governments have responded,” noted an economic analyst.
The Bank of England decided to hold on interest rates at its March meeting, leaving them at 4.5%. Plenty are looking for a change in approach given the state of inflation these days. Economists’ outlook is that inflation will climb back up, starting with an increase to about 3.5% in the next few months. Most economists feel that a weak economy will inevitably drive inflation down.
For now, though, we’re maintaining our forecast that inflation will slowly drift down to 2.0% in 2026 stated another analyst. The risks to that rosy outlook seem to be getting more lopsided in the downward direction. He added too, emphasizing how unpredictable the current economic climate is.
Reflecting this positive news, the pound rose by 0.25% against the U.S. dollar to $1.3265. This is being interpreted as positive market sentiment regarding the future of U.K.-Washington trade negotiations.
The Bank of England is already preparing for its next meeting. It will need to balance any inflationary pressures against the wider economic picture and its trade hopes with the United States. The U.K.’s fiscal situation, following the conclusion of these deliberations, will almost certainly define the country’s spending priorities in the coming months.