Inflation in the UK slowed in March

Tuesday, 12 April 2011 02:06

Inflation in the UK slowed in March for the first time in eight months, consumer prices rose 4 % from a year earlier after a 4.4 % increase in February. The cost of food fell the most in almost four years due to heavy discounting at supermarkets and food outlets.

The Bank of England may now have less pressure after it held off raising its key interest rate this month even though inflation is still 2 times the BOE target. Investors now expect the Bank of England to raise its key rate by 25 basis points in October. That compares with an expected quarter-point rise by July predicted as recently as April 8 this is based on forward and futures contracts on the sterling interbank.

Consumer prices rose 0.3 % in March, food prices fell 1.4 %, the biggest decline since a 1.7 % drop in July 2007. Core inflation, which excludes costs of energy, alcohol, food and tobacco, slowed to 3.2 % after a 3.4 % increase in February. Crude oil prices have soared 35 % in the last six months alone.

In a separate report, the U.K.’s total trade deficit narrowed to 2.44 billion pounds ($4 billion) in February from 3.86 billion pounds in January. The goods-trade gap shrank to 6.78 billion pounds from 7.79 billion pounds as exports rose 1.3 % and imports fell 2.2 %.

Bank of England policy makers voted to keep their bond purchase plan at 200 billion pounds at this months meeting.