UK inflation falls as petrol prices dip - what it means for your money

UK fell by more than expected to 2.6% in March thanks to lower , latest figures released today show. It marks the second month in a row where inflation has eased.

Inflation is down from the but is still above the target rate of 2% that the is trying to achieve. The fall is better than the 2.7% economists had predicted - however, experts are expecting it to go up in April after the Ofgem energy price cap rose again.

The Office for National Statistics (ONS), which releases inflation data every month, said falling petrol prices was one of the biggest contributors for inflation coming down. The latest update shows fuel prices fell by 5.3% overall in the 12 months to March 2025. The average price of petrol fell to 137.5p per litre - down 1.6p on a monthly basis, and down from the 144.8p per litre that motorists paid in March 2024.

Diesel prices also fell by 1.6p per litre on a monthly basis to stand at 144.8p per litre in March 2025, down from 154.1p per litre in March 2024. But the ONS said the price of clothes went up, with costs rising by 1.1% in the 12 months to March 2025, compared with the fall of 0.6% that we saw in the 12 months to February.

Grant Fitzner, chief economist at the ONS, said: “Inflation eased again in March, driven by a variety of factors including falling fuel prices and unchanged food costs compared with the price rises we saw this time last year. The only significant offset came from the price of clothes, which rose strongly this month, following the unusual decrease in February.”

Inflation fell to its lowest level in three years in September last year when it dropped to 1.7% but started to rise again in October after went up. At its last meeting in March, the Bank of England said it expects inflation to hit 3.5% toward the end of this year. The ONS releases inflation data each month.

Chancellor , said: "Inflation falling for two months in a row, wages growing faster than prices and positive growth figures are encouraging signs that our Plan for Change is working, but there is more to be done.

"I know many families are still struggling with the cost of living and this is an anxious time because of a changing . That is why the Government has boosted pay for three million people by increasing the minimum wage, frozen fuel duty and begun rolling out free breakfast clubs in primary schools."

Shadow Chancellor Mel Stride said: “Inflation remains above target and we know from official forecasts that price rises are set to increase further this year because of the Chancellor’s choices… Be in no doubt, the Chancellor’s choices are keeping inflation higher for longer and working families are paying the price.“

What is inflation?

Inflation shows how the price of goods and services have changed over time. The Consumer Price Index (CPI) is the main measure of inflation. The ONS calculates inflation based on a regularly updated "basket of goods" and services that represents what households are buying.

However, the main CPI figure you see in headlines is used to represent an average. This means the individual prices of some goods may be higher or lower than this main figure. When inflation is lower, it does not mean prices have stopped rising - it just means they're going up at a slightly slower rate than before. For example, if the rate of inflation is 2%, it means an item that cost £1 last year would now cost £1.02.

How is inflation linked to interest rates?

The Bank of England increased interest rates over the course of almost two years to try and lower inflation to its 2% target. The base rate influences the interest rate you're offered by banks and lenders - so when it is higher, borrowing becomes more expensive and this means people have less money to spend elsewhere. When people spend less money, this brings down demand and lower prices, which should then lower inflation.

But a higher base rate has pushed up mortgage payments for millions of homeowners, leaving households financially stretched. The base rate stood at just 0.1% in December 2021. It reached a peak of 5.25% in August 2023 but has since been cut three times to its current level of 4.5%. Inflation was held at 4.5% at the last Bank of England meeting in March 2025.

Why did inflation peak?

Inflation began to rise in 2021 and peaked at 11.1% in October 2022. The steady increase was largely due to higher costs of energy and food. Demand for energy increased after and then this was exasperated by the Russian invasion of . The war also pushed up food prices, due to rising costs for fertilisers and animal feed. Both energy and food price rises have come down in recent months, although they are still higher than before.

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