Consumer price inflation in Britain unexpectedly fell in March, official figures showed Tuesday, easing the pressure on the Bank of England to raise interest rates next month.
The Office for National Statistics said consumer prices rose by 4 percent in the year to March, down from February's rate of 4.4 percent. The drop was largely due to lower costs for food, nonalcoholic beverages, recreation and air travel.
The decline was the first in seven months and was unexpected. Most analysts thought inflation would stay around February's level.
The impact was felt immediately in the foreign exchange markets, where traders moved to reduce their expectations of an interest rate increase in May. The British pound dropped to $1.6260 from $1.6310 shortly after the data was released while the euro climbed to 0.8888 pound from 0.8842 pound.
Despite March's decline, inflation remains a real headache for rate-setters at the Bank of England as it's been above the 2 percent target for 16 straight months, largely on the back of rising energy costs and higher sales taxes.
"This may be only a temporary respite, with recent rises in energy prices potentially pushing the headline rate higher in the coming months," said Vicky Redwood, senior U.K. economist at Capital Economics.
The inflation figures came after earlier data from the British Retail Consortium showed the sharpest drop in retail sales in at least 16 years. It revealed that total sales were 1.9 percent in March than the year before, the biggest decline since the survey began in 1995.
"This year's later Easter is a factor but this fall goes way beyond anything that can be explained by that alone," said Stephen Robertson, the Consortium's director general. "Uncomfortably high inflation and low wage growth have produced the first year-on-year fall in disposable incomes for thirty years."
The BRC's figures echo recent findings elsewhere that the British economy is not recovering as strongly as some of its peers, such as Germany as households rein in spending to cope with high inflation, rising taxes and elevated energy costs.
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