UK inflation slipped lower in March, according to official statistics, and economists predicted a much sharper fall in the coming months as the economic toll of the coronavirus lockdown mounts.
Consumer price inflation fell to 1.5 per cent year on year from 1.7 per cent in February, the Office for National Statistics reported on Wednesday. The Bank of England’s target is 2 per cent.
Although data for the month were collected before the government imposed lockdown measures, the fall is the clearest indication yet of how the Covid-19 pandemic is likely to affect prices in the UK.
Andrew Wishart, UK economist at consultancy Capital Economics, forecast that inflation would slip to 0.9 per cent in April, as Ofgem, the energy regulator, lowers the cap on utility bills, then further to 0.5 per cent in the summer as the recession begins to bite.
“The disinflationary pressure of weak demand in the aftermath of the coronavirus recession due to the fall in employment and consumers remaining cautious will add to the downward influence from very low energy prices,” he said.
In March, the main drivers of the fall in inflation were housing, water prices and fuel, tied in part to lower oil prices with Brent crude oil, the global benchmark, hovering around $30 a barrel when data were gathered.
Oil prices crashed a further 50 per cent in the course of the month, and this week the West Texas Intermediate benchmark dropped to below zero for the first time in history.
Prices of clothing and hotels and restaurants also fell last month, as the spread of Covid-19 prompted people to stay at home and eat out less.
Core inflation, which excludes energy, food and alcohol and is considered a less volatile measure of underlying price pressure, fell from 1.7 per cent to 1.6 per cent.
Howard Archer, chief economic adviser for the EY Item Club, said the news would provide a boost to consumers. “In the current highly challenging environment, any piece of helpful news on the economy is to be welcomed,” he said.
The impact of coronavirus has driven some prices up as well as down: a rise in air fares in a virtually shut down aviation sector provided the biggest boost to the month’s inflation, partially offsetting the falls.
Lockdown measures present “practical and conceptual challenges” to how data on prices in collected, Mr Archer noted.
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About 45 per cent of the shopping basket used to calculate inflation is collected in physical stores in 140 locations, for example, an exercise likely to be extremely difficult, and in some cases impossible, during lockdown.
The ONS plans to adjust its collection methods to account for these challenges, as well as volatile and missing prices in areas such as clothing, transport, hotels and restaurants. It will announce its “methodological changes” next month.
“There will inevitably be challenges around some of our collection activities,” it said.