2018.04.1900:17:00UTC+00UK Inflation Drops to 2.5%, its Lowest in a Year

UK inflation dropped in March to its lowest level in a year, raising questions over whether the Bank of England will raise interest rates in May.

The consumer price index (CPI) dropped to 2.5 percent in March from 2.7 percent in February, according to the Office for National Statistics. Economists had expected the annual rate of growth in prices to remain unchanged at 2.7 percent.

A smaller increase than is usual in the price of women's clothing was mainly responsible for the sharp decline, as well as the abolition of the Spring Budget, which meant there was no increase in alcohol and tobacco duty.

The decline in the headline inflation rate came from a fall in the rate of goods inflation from three percent in February to 2.4 percent in March. Goods prices are thought to be more sensitive to the exchange rate.

The sudden drop in inflation will lead investors to question whether the BoE will hike interest rates at its May meeting. However, many economists still expect the Bank of England, which had been forecasting CPI to average 2.9 percent over the first three months of 2018, to raise rates in May.

According to the most recent figures, UK wages increased by 2.8 percent in February.

Inflation has dropped in recent months as the impact of the sudden fall in the value of the pound after the EU referendum begins to fade. Having pushed up the cost of imported goods, the slide for sterling damaged the economy as squeezed consumers reined in their spending.