UK March annual CPI inflation unchanged at 2.5 percent

LONDON (Thomson Financial) - Annual UK CPI inflation was unchanged in March at 2.5 percent as rises in air travel and energy prices were offset by falls in furniture prices, official figures from the Office for National Statistics showed.

However, inflation remained stubbornly above the Bank of England's (BoE) 2.0 percent target for the sixth month running.

The annual inflation rate was last higher in April 2007.

On a month-on-month basis, March CPI inflation slowed to 0.4 percent after rising 0.7 pct in February.

Both the monthly and annual rates missed expectations for gains of 0.6 pct and 2.6 percent respectively.

The fact that inflation has not risen further will come as a relief to the Bank of England rate-setters, who had the headline figures to hand at its meeting last week, and may have been a factor in their decision to cut the key Bank Rate by a quarter point to 5.00 percent.

The rise in inflation during March was driven by rises in transport costs, particularly air travel, as well as increases in the prices of heating oil and gas. Transport prices rose by an annual 7 percent, the highest since records began in January 1997.

These were offset by falls in furniture and furnishing prices, as well as in games, toys and hobbies.

Meanwhile, the BoE's concerns over rising inflationary pressures may have been tempered by continued subdued prices excluding volatile elements such as energy and food.

The underlying, or 'core' measure of CPI -- which excludes energy, food, alcoholic beverages and tobacco -- rose at an annual rate of 1.2 percent, unchanged from February.

On a month-on-month basis, core CPI was up 0.4 percent after rising 0.3 percent in February.

Elsewhere in today's release, the statistics office said the annual rate of RPI inflation -- which includes housing costs and is used in pensions payments and pay negotiations -- fell to 3.8 percent from 4.1 in February. This is the lowest rise since July 2007, and misses expectations for a smaller drop to 3.9 percent.

The decrease in the RPI rate was driven by falls in mortgage interest payments as lenders passed on the Bank of England's interest rate cut in February.

On a monthly basis, RPI inflation rose 0.3 percent after rising 0.8 percent in February, well below forecasts for 0.6 percent rise.

Meanwhile, the annual RPIX measure, which excludes mortgage payments, was 3.5 percent, against 3.7 percent in February, again missing forecasts for 3.6 percent.

However, the annual RPIX measure remains well above the 2.5 pct annual rate that the BoE was previously charged with targeting and has been above that level since May 2006.

Month-on-month, RPIX was up 0.5 percent after increasing 0.8 percent the previous month, below expectations for a rise of 0.7 percent.

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