UK inflation fell to 2.1% in March 2026, according to the Office for National Statistics, its lowest level since July 2022 and the closest to the Bank of England's 2% target since before the cost of living crisis began.
What Drove the Fall
The main downward contributors were energy prices, which fell 3.2% over the month as the Ofgem price cap was reduced, and food prices, where annual inflation eased to 2.8% — its lowest level since 2021.
Services inflation, which the Bank watches most closely, also fell marginally, from 4.1% to 3.9%. This is a meaningful development — persistent services inflation had been the main argument against rate cuts.
Implications for Interest Rates
The data significantly increases the probability of a Bank of England rate cut at the June meeting. Markets now price an 85% probability of a cut to 4.0% in June, up from 60% before the release.
The Governor Andrew Bailey said the figures were "encouraging" but warned that the MPC would need to be confident that the fall was sustained before acting. The Bank's own forecast had projected inflation at 2.3% in March; the undershoot strengthens the case for earlier easing.
What It Means for Households
For households still feeling the cumulative effect of four years of elevated prices, headline inflation at 2.1% is cold comfort. Grocery prices are still 26% higher than in January 2021; the rate of increase has slowed, but the level has not reversed. The pain of the cost of living crisis is not over — it has simply stopped accelerating.
