Easter prompted an unexpected rise in March inflation to 0.5 per cent from 0.3 per cent in February, the Office for National Statistics revealed today.
Core inflation, which strips out volatile components such as food and energy, rose 1.5 per cent.
Ben Brettell, senior economist at Hargreaves Lansdown, says economists had expected a smaller rise of 0.4 per cent for March.
“This was welcome news for the pound, which rebounded slightly having fallen to its lowest level in more than two years against a basket of global currencies last week,” he says.
Air fares rose 22.9 per cent month-on-month, due to consumers travelling for the four-day Easter holiday, and restaurant and café prices rising also pushed the rate up.
However, there was a downwards pull from a deeper year-on-year drop in food and non-alcoholic drink prices.
The CPI is still a long way from its 2 per cent target, meaning an impending rate rise is unlikely. Inflation is expected to reach 1 per cent in the fourth quarter and 2 per cent by the end of 2017, according to economic research firm IHS Global Insight.
Howard Archer, chief UK and European economist at IHS, says that inflation might edge back in April, correcting from the Easter-related price increase.
Archer adds that the UK economy will regain some momentum in the second half of the year if Britain votes to remain in Europe at the referendum; however, monetary policy would become a lot more complicated if constituents voted for a Brexit.
In this scenario, the sterling would likely fall sharply and heightened uncertainty would weigh down on economic activity, especially on business investment, he says. However, the weaker pound would help exports.
Archer adds that retailers, manufacturers and services companies would “likely find their pricing power limited for some time to come, given that the past prolonged squeeze on households’ purchasing power has made consumers price conscious”.