The latest inflation data for March 2025 indicates a continued cooling in price pressures. Headline CPI rose by 2.6 percent year-over-year, easing from 2.8 percent in February, with a modest monthly increase of 0.3 percent, 0.1 percent below the pace seen a month earlier. Both monthly and annual inflation were 0.1 percent below the consensus forecasts. Similarly, CPIH, which includes owner-occupiers' housing costs, slowed to 3.4 percent from 3.7 percent on an annual basis. Core inflation also edged down year-over-year, with Core CPI at 3.4 percent and Core CPIH at 4.2 percent, suggesting underlying pressures are gradually moderating.

Notably, the annual inflation rate for goods declined slightly, while services inflation remained relatively elevated, although easing. Key downward drivers included lower prices for recreation, culture, motor fuels, and housing-related services. Clothing provided the only significant upward push.

These figures suggest that while inflation remains above the Bank of England's 2 percent target, the trend is decisively downward. This may relieve households and strengthen the case for holding interest rates steady or cautiously considering future cuts if the disinflationary path persists. This latest update takes the UK RPI to 15 and the RPI-P to 42, meaning that economic activities are well ahead of market expectations of the UK economy.

UK annual inflation seen at 2.7 percent in March versus 2.8 percent in February. Month on month, the consensus looks for another increase of 0.4 percent after 0.4 percent in February.

The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using the same methodology developed by Eurostat, the European Union's statistical agency, for its harmonised index of consumer prices (HICP). The CPI is the Bank of England's target inflation measure.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as the UK, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. Inflation is an increase in the overall price level of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.