Developing

Inflation Steady Despite Car Insurance Rises

The headline measure of inflation remained steady in March as a reduction in the pace of fuel cost rises offset a sharp increase in car insurance prices.

The Office for National Statistics (ONS) said the Consumer Prices Index (CPI) stayed at an annual rate of 2.8%.

Some economists had predicted an increase to 3%.

A 5.8% rise in car insurance premiums - partly a result of rising whiplash claims and an EU ban on setting premiums by gender - were found to have piled further pressure on household budgets, though slower rises in diesel and petrol prices helped cancel out the effect.

Petrol prices rose by 2.2p a litre against 3.3p a litre a year earlier, the ONS said, while diesel increased by 1.9p a litre compared with 2.6p last March.

Rises in the cost of books and digital cameras were also offset by lower inflation for sofas and armchairs.

Separate ONS figures also showed that factory gate inflation rose by an annual rate of just 2%, the smallest increase since July, on the back of falling oil prices.

Easing rises in producer prices challenge expectations that CPI will rise significantly in the coming months.

Many forecasts see CPI toping 3.5% by mid-summer - a result of higher water, gas and electricity bills - but it remains to be seen whether the lower oil prices of recent weeks can be sustained, to help bring down wider costs in the economy.

Supermarkets have been cutting fuel prices, with the latest drops in effect from Tuesday, however the weak pound has also led to higher prices for imported goods.

There has been little sign so far that sterling's weakness has significantly benefited demand from exporters amid the sluggish economic recovery across the world and confidence in the UK has remained lacklustre.

However, a survey of chief financial officers (CFOs) at top UK firms by business services firm Deloitte found private sector confidence may be starting to return.

It showed that the cost and availability of credit, and attractiveness of bank lending, was at its best level for five years while there was a rise to 34% of CFOs who said now was a good time to take risk on to balance sheets.

Their perceptions of macroeconomic and financial uncertainty dropped to their lowest level for two and a half years, the study said.

Ian Stewart, chief economist at Deloitte, said: "Despite the gloomy coverage around the UK Budget and the crisis in Cyprus, CFOs believe that that the level of economic and financial risk facing their businesses has declined.

"Corporate appetite for risk is not far off the peaks seen in early 2011 when Europe looked set for a sustained recovery."