Britain's double-digit inflation rate slowed last month, but the drop will likely bring only limited relief to households because of still-rapidly rising food prices.
Consumer prices rose 10.1% in March compared with a year earlier, the U.K. Office for National Statistics said Wednesday, a slightly slower annual pace than the 10.4% in February. But economists had expected the country's inflation rate to drop below 10% for the first time since the summer.
Britain's annual inflation rate peaked at 11.1% in October, but its downward trend was disrupted in February, when the rate unexpectedly ticked higher. The Bank of England then raised interest rates for an 11th consecutive time in March, to 4.25%, the highest since 2008.
Wednesday's data is a welcome return to inflation's downward path, but Britain's cost-of-living challenges remain stark -- and likely further complicated by the nation's lasting divorce from the European Union.
Last month, British food prices rose about 19% from a year earlier, with bread, meat and cooking oils continuing to climb quickly. Bread and cereal price inflation is at a record high, according to the statistics office. Core inflation, a measure that excludes food and energy prices, which tend to be more volatile, was 6.2%, the same as the previous month.
Britain's annual rate of inflation is still high compared with that of international peers. In the United States, consumer prices moderated in March, rising 5% from a year earlier, while the eurozone's consumer inflation rate eased to 6.9%.
Although inflation is expected to slow sharply this year as lower energy prices reduce business costs and household bills, uncertainty remains about how quickly the pace of price increases will return to the central bank's 2% target.
Policymakers at the Bank of England have been closely monitoring private-sector wage growth and prices in the service sector for signs of how deeply inflationary pressures are becoming embedded in the economy.
On Tuesday, data from the statistics office showed wages, excluding bonuses, rose 6.6% in the three months to February, compared with a year earlier, beating economists' expectations. But there were also tentative signs that Britain's labor market was beginning to loosen, supporting bets the Bank of England is close to halting rate increases. In February, for a second consecutive month, the pace of wage growth in the private sector slowed slightly, while the number of job vacancies fell and more people returned to the workforce, Tuesday's data showed.
Services inflation, which is heavily influenced by companies' wage costs, held steady at 6.6%, data published Wednesday showed. This is the last set of inflation data that will be released before Bank of England policymakers meet in early May to decide whether to raise interest rates again.
In February, the central bank had predicted the inflation rate would drop to 9.2% in March.
"Headline inflation in the U.K. is once again heading in the right direction, yet the Bank of England is still a long way away from being able to feel comfortable that price pressures are under control," Hugh Gimber, a strategist at JPMorgan Asset Management, said in a statement Wednesday, adding that another quarter-point increase in interest rates appeared "highly likely" next month. "The biggest mistake would be to claim victory prematurely."
BREXIT IMPACTS
As officials struggle taming double-digit inflation and the resulting cost-of-living crisis, the U.K. economy is yet to feel the worst impacts of Britain's divorce from the EU, senior business leaders said Wednesday.
"The messier part is yet to come," concerning financial services, Citibank Europe CEO Kristine Braden said in a panel discussion at the Bloomberg New Economy Gateway Europe conference.
Braden's view was backed up by APCO Worldwide adviser Declan Kelleher, who said cross-border trade frictions are likely to increase as the U.K. begins to implement new rules. Meanwhile, Ryanair's CEO Michael O'Leary said the exit will continue to have a "net negative" impact on the U.K. economy over the short to medium terms.
The business views highlight how Brexit continues to weigh on a range of companies some seven years after Britons narrowly voted to leave the EU.
The Office for Budget Responsibility, the government's fiscal watchdog, estimates Brexit will knock 4% off projected economic output in the long term.
Braden said her bank -- a unit of Citigroup -- has redirected clients to its offices in the EU as a result of Brexit. It's in the process of moving employees and is now entering a third phase, moving some of its products from the U.K. to other European countries.
For his part, O'Leary said the impact on Ryanair has been "considerably messier than it should have been" and warned a more sensible trading agreement between the U.K. and EU is needed to mitigate the repercussions.
Ryanair has faced "huge challenges" in the U.K., largely because the country's "labor market is broken," he said. It's "incredibly hard" to hire people in the U.K., and getting visas for European workers is now very expensive, adding to costs, he said.
Meanwhile, Kelleher, a senior adviser at APCO, warned the trading friction caused by Brexit will increase over time because the U.K. hasn't yet fully implemented regulatory changes and border checks.
"Those barriers are still there and they're actually going to increase," Kelleher, who previously worked as Ireland's Permanent Representative to the EU in Brussels, said. Once controls are fully enforced, the impact on businesses will "become even more difficult," he said.
Still, there have been some improvements. U.K. Prime Minister Rishi Sunak earlier this year struck a fresh deal with the EU on trading arrangements for Northern Ireland, removing a major point of tension with the bloc. Both O'Leary and Braden said that represented progress.
Information for this article was contributed by Eshe Nelson of The New York Times and Ellen Milligan of Bloomberg News (WPNS).