BREAKING: UK inflation falls as petrol prices dip - what it means for your money

UK fell to 2.6% in March, latest figures from the Office for National Statistics (ONS) show. This is down from the but is still above the target rate of 2% that the is trying to achieve.

The majority of economists had predicted inflation would be slightly lower in March - but experts are expecting it to jump again in April due to the Ofgem energy price cap rising again. Inflation fell to its lowest level in three years in September last year when it dropped to 1.7% but started to rise again in October after went up.

At its last meeting in March, the Bank of England said it expects inflation to it 3.5% toward the end of this year. The ONS releases inflation data each month.

What is inflation?

Inflation shows how the price of goods and services have changed over time. The Consumer Price Index (CPI) is the main measure of inflation. The ONS calculates inflation based on a regularly updated "basket of goods" and services that represents what households are buying.

However, the main CPI figure you see in headlines is used to represent an average. This means the individual prices of some goods may be higher or lower than this main figure. When inflation is lower, it does not mean prices have stopped rising - it just means they're going up at a slightly slower rate than before. For example, if the rate of inflation is 2%, it means an item that cost £1 last year would now cost £1.02.

How is inflation linked to interest rates?

The Bank of England increased interest rates over the course of almost two years to try and lower inflation to its 2% target. The base rate influences the interest rate you're offered by banks and lenders - so when it is higher, borrowing becomes more expensive and this means people have less money to spend elsewhere. When people spend less money, this brings down demand and lower prices, which should then lower inflation.

But a higher base rate has pushed up mortgage payments for millions of homeowners, leaving households financially stretched. The base rate stood at just 0.1% in December 2021. It reached a peak of 5.25% in August 2023 but has since been cut three times to its current level of 4.5%. Inflation was held at 4.5% at the last Bank of England meeting in March 2025.

Why did inflation peak?

Inflation began to rise in 2021 and peaked at 11.1% in October 2022. The steady increase was largely due to higher costs of energy and food. Demand for energy increased after and then this was exasperated by the Russian invasion of . The war also pushed up food prices, due to rising costs for fertilisers and animal feed. Both energy and food price rises have come down in recent months, although they are still higher than before.

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