Fall in inflation surprises City
Inflation unexpectedly slowed last month, official figures have revealed, as hard-pressed retailers slashed prices to pull in cautious consumers.
The Consumer Prices Index (CPI) rate of inflation was 4% in March, down from 4.4% in February and back to the level seen in January, the Office for National Statistics (ONS) said.
City analysts had expected the CPI rate to hold at 4.4%.
The drop in the cost of living was driven by falling food prices, the ONS said, which slipped 1.4% as supermarkets rolled out heavy discounts to draw in cash-strapped consumers.
The figures came as the British Retail Consortium (BRC) revealed the biggest sales drop in its 16-year history, with total sales in March dropping 1.9% on a year ago.
The improved rate of inflation will weaken the prospect of an imminent interest rate hike by policymakers at the Bank of England, although the figure is still double the Government's 2% target.
The most significant downward pressure between February and March came from the falling cost of food and non-alcoholic beverages, most notably fruit, bread and cereals. Supermarkets were behind the plunge, the ONS said, as they slashed prices in the face of weakening consumer confidence.
With consumers reining in their spending on all but essential purchases, retailers - part of the UK's powerhouse services industry - have suffered in recent months. The BRC said like-for-like sales in March were down 3.5% - the worst performance since April 2005.
Other measures of inflation also dropped. The headline rate of Retail Prices Index (RPI) inflation, which includes mortgage costs, was 5.3% in March, down from 5.5% in February.
The figures will further alleviate pressure to raise interest rates, even though the Bank itself has forecast inflation hitting 5% in the coming months. Last week, the Monetary Policy Committee (MPC) held interest rates for the 25th month in a row as it faced a challenging mix of soaring inflation and sluggish economic growth.