Business Fear Inflation ‘Calm Before The Storm’

A small drop in the rate of inflation is always welcome. However, businesses fear it is the calm before the storm over the months ahead.

Today’s data for March, covers a period before the double whammy of minimum wage and national insurance rises. Businesses are already telling us they are putting up their prices, as they battle with increased employment costs.

Our latest survey showed business concern about inflation at 53%, up from the previous quarter. The rising global trade war will also heap further price pressure on businesses and consumers.

Inflationary pressures mean the Bank of England is likely to remain cautious over more interest rate cuts – just when firms are keen for some financial respite.

Businesses desperately need a lifeline from policymakers. We need to see a tax roadmap, giving firms an idea of when business rate and national insurance pressures will ease. Ministers should also focus on infrastructure and exports as a clear path to business growth in these challenging times.

A second straight decline in inflation is good news, not just for everyday budgets, but for long-term financial planning too. Of course, broader uncertainty hasn’t gone away – US tariffs are continuing to irritate global markets.

That said, slowing price growth is exactly what’s needed to help people rebuild their savings. It could also create the conditions for the Bank of England to consider easing interest rates later this year, presenting fresh opportunities to reassess financial plans.

While it makes sense for savers to review their plans and consider the opportunities available, it’s important to avoid knee-jerk reactions that could undermine your financial goals. The key is to stay informed, stay calm, and seek regulated financial advice if you’re unsure. A steady, well-considered approach will always serve better than acting on short-term noise.

March inflation coming in broadly in line with Bank of England expectations is welcome news, particularly ahead of a likely pick up in price pressures in April due to higher energy costs, regulated price increases, and the passthrough of Autumn Budget measures.

The introduction of higher US tariffs adds some uncertainty to the outlook, as they could put both upward and downward pressure on inflation in the UK. Businesses welcome the government’s ongoing commitment to the principles of free, fair, and open trade, as well as promising to go further and faster to support firms during this period of instability.

Today’s data suggests that the Bank of England’s Monetary Policy Committee will likely cut rates next month. Looking ahead, we expect them to continue their ‘gradual and careful’ approach to reducing borrowing costs amid an uncertain economic environment.

Inflation has come in a little lower than expected again in March, with services inflation easing to 4.7% while goods inflation dropped to 0.6%. Downward pressures on inflation broadened this month to seven categories, with recreation and culture subtracting most from the annual rate. Inflation is expected to lift sharply next month with the rise in the Ofgem price cap.

Tariff turbulence injects new uncertainty into the outlook for inflation and interest rates in the UK. Tariffs set on goods coming into the US can affect the UK via a number of channels: lower global growth (creating less demand for UK exports and lowering commodity prices), financial market volatility, exchange rate volatility, supply chain effects and trade diversion into UK. Many of these effects put downward pressure on inflation – indeed gas prices are now some 40% below their February peak while Brent Crude is 7% down over the same period. We may see more interest rate cuts than previously expected this year which would provide some welcome support to the economy.

The broad-based fall in headline inflation to 2.6% in March is another step in the right direction. The services and core rates excluding food and energy are still relatively high, but they fell too.

Inflation is still set to rebound to at least 3% in April, led by energy and water bills and the pass through of higher labour costs. Nonetheless, the peak should now be comfortably below the 3.7% expected by the Bank of England and OBR.

In the meantime, the latest jobs data confirm that the labour market is cooling. Moreover, money and credit growth remain too weak for any pick up in headline inflation to be sustained.

The main uncertainty now is the fallout from the global trade war on both demand and supply. The net effect on UK inflation could still go either way.

But the immediate impact has been to depress global energy prices, which are now much lower than the Bank of England had assumed.

The upshot is that the Bank now has the green light to cut interest rates again in May. The MPC will probably want to stick to their ‘gradual’ approach and only trim rates by another quarter point. But there is a strong case for returning rates to a neutral level more quickly with a half point cut.

Today’s inflation figures suggest a fragile but promising momentum – a second month of stability that hints we may be turning a corner, though not yet out of the woods. For many, this will feel less like a breakthrough and more like a cautious exhale, especially given the many troubling factors surrounding the economy.

The Spring Statement outlined a careful balance between support and sustainability – and today’s figures should give the Chancellor a little more breathing room. That said, looming global pressures, including President Trump’s tariff policies, could still feed into rising costs in the months ahead. The path to long-term price stability is far from guaranteed.

For now, the Bank of England may feel more confident in its long walk to rate cuts, though it will remain watchful of any external shocks. This is also a crucial moment for savers – locking in strong rates while they remain available could provide valuable protection. Lenders and financial institutions have a duty to offer smart, flexible options that help customers navigate an uncertain landscape with confidence.