Inflation falls: Are we finally past the cost of living crisis?

0:06Hi, I'm Suze Cooper and welcome back to The Standard Podcast. If you're new here, hit follow and give us a rating. Coming up. I think for Arsenal fans, the ones who've travelled are thinking that they're going to be here for a historic night and Arsenal are in a great position to pull off what would be a massive result. We'll be joined by The Standards football writer Simon Collings, ahead of Arsenal's Champions League quarterfinal decider against Real Madrid.

0:34But first, inflation has fallen again, now down to 2.6 % in March, the lowest it's been since December. The drop, driven by falling fuel prices and softer hotel rates, is being welcomed in Westminster as another sign the economy is stabilising. It's the latest in a run of stronger-than-expected data, coming as wages are rising at their fastest pace in months. But with energy and water bills set to rise, some economists are warning the picture could change again as early as next month. So what does this latest drop really mean? Is it just a blip? How might Trump's tariffs have an effect? And what is Rachel Reeves saying about it all?

1:12Well, joining me now is The Standards' business editor, Jonathan Prynne. Jonathan, why are we seeing this fall in inflation? The main reason is because petrol and diesel prices at the forecourts have been falling over the past year, thanks to a lower oil price. And that's a huge part of average sort of household spending. And the falls have been really quite substantial down about 5 % year on year. So that's dragged down the whole kind of cost of living as measured by the consumer prices index, which is the headline measure yardstick of inflation. Yeah, so inflation in March fell 2.6 % from 2.8 % in February.

1:51And that was a bigger fall than the city expected. So good news. So when inflation goes down, how does that actually affect people's day to day lives? Well, it is quite confusing and complicated. But essentially, it means that the rate of which prices are going up overall across a basket of goods and services, which is what the Office for National Statistics uses to measure inflation, that basket of goods and services is going up at a slower pace than it was last month and the month before that. It doesn't mean that prices are going down. We very rarely get what economists call deflation when prices are actually falling.

2:29And in many respects, economists say that's not a good thing for the economy. So slow inflation, around 2 % is what they look for. That's the target the Bank of England sets. But the other thing to bear in mind is that wages are rising much faster than inflation at the the moment. So your pay packet is going up much more quickly than the price of goods in shops. Wages were up 3.6 % in the last set of figures from the ONS yesterday. If your wages are going up, but the cost of living is going up by less than that, that you're getting better off, that your wages will buy you more for your money. So people have started to feel a little bit more comfortable in their living standards after a very long period of the cost of living crisis, which thankfully, for now at least, is over.

3:17So can you say whether or not this is just a blip? It sounds there like you're saying this might be more of a trend and we might actually be turning a corner. Yeah, what the economists are saying today is that while it's good news, we shouldn't get overexcited because we know that April has brought a lot of price increases and that's bound to feed through to the official headline rate of inflation when the results are revealed in a month's time. We know, for example, that energy prices went up 6%, I think it was. Water bills went up substantially, much more than that. And things like mobile phone tariffs, mid-contract tariffs and things like that, they all come into effect in April.

3:57So it's almost certain that the rate of inflation will rise again in April. Just how much is a question that we don't know the answer to yet. There are other factors as well. The national insurance contribution increases for employers came into effect in April. There are fears that they may be passed on to consumers in the form of higher prices as well. So April could be a tough month. We could see inflation head back up towards 3 % again or even beyond. and 3.5 % maybe later in the year. That's what economists are forecasting. But after that, going into 2026, they expect inflation to start falling again.

4:36So the rest of the year may be tougher, but hopefully longer term we are on a downward trend. So at the moment, all the headlines are about Trump's tariffs and the impact they might have on the cost of what we're buying. What might the effect of those tariffs be on all of this? Yeah, it's so hard to predict. At the moment, the UK and the European Union, in general terms, has decided to not put reciprocal tariffs onto US goods coming into the UK. So hopefully US exports will not go up in the UK. And there are some people predicting that with China blots, effectively blocked from US markets, the Chinese manufacturers might end up dumping a lot of their products at cut prices into Europe and the UK.

5:24And Europe is the second biggest consumer market in the world after America. So there are some suggestions that we might see a lot of cut price Chinese goods coming into the UK over the coming months. Now, that may not be particularly good for UK competitors, but it's very good for prices on the high street. So it could be that the Trump tariff madness really could have a good effect on UK inflation. But, you know, these are all predictions. It's really hard to see how it's all going to play out, but it may work out OK. The consumer might end up being the winner in the UK out of all this. So what's Rachel Reeve saying about it all?

6:06The message from the government generally has been keep calm and carry on. They haven't put reciprocal tariffs on, as I said. And she's put out a statement this morning saying how pleased she is that inflation has come down. It's the second month on the trot that inflation has come down. So I think they're quite happy with the way things are going in the economy after what was a really tough first six months for them with the very badly received autumn budget and a lot of really bad growth figures over the course of the first six months after the election. So the fact that we're seeing the growth figures have been better than expected, the inflation figures have been better than expected, interest rates will almost certainly drop again in May by another quarter point down to 4.25%.

6:53So, you know, after a very tough winter, things are looking a little bit brighter for Rachel Reeves would just have to see how the impact of the trade wars plays out for the UK economy. But I think they're cautiously optimistic, actually, after what was a very hard first six months in office. You mentioned interest rates there. What does today's inflation mean for the timing of interest rate cuts? Well, I think the city was expecting an interest rate cut in May anyway. The fact that inflation has fallen further than expected takes the pressure off the Bank of England. So I think it's even more likely now that we'll see an interest rate cut next month when the Bank of England's Monetary Policy Committee meets in early May.

7:35That will probably bring it down the main rate from 4.5%, 4.25%. And that is great for businesses who are struggling under a burden of debt. It's great for first-time buyers. It's great for existing mortgage holders. It just takes the pressure off and just puts a little bit more zip into the economy. So I think all other things being equal, it's very likely now that we'll get an interest rate cut in a few weeks' time.

8:06Let's go to a break. Coming up in part two, could closing the Bernabeu roof really throw Arsenal off their game? Or is it just Real Madrid playing mind games? The Standards football writer Simon Collings joins us to break down Arsenal's biggest European night in years. We'll see you back here in just a moment.

8:30Welcome back. It's a huge night in Europe and a huge moment for London football. Arsenal are in Madrid for one of the biggest tests of their season, facing 15-time champions Real Madrid at the iconic Bernabeu. The Gunners will be hoping to bag a place in the semi-finals of the Champions League for the first time since 2009. Well, the standards football writer Simon when Collings is in Spain for the tie. Simon, what's it taken Arsenal to get to today? A lot of work, a lot of hard work. They've had a really difficult season. They've had a lot of injuries. They've had suspensions with red cards. And I think when the draw was made, a lot of people thought this would be where Arsenal's Champions League journey would end.

9:11They had a brilliant result in the first leg, probably up there with one of the best nights the club's ever had in its history, winning 3-0. And yeah, it's been a real collective effort from the club to pull together in what's been a difficult season. And they've now got a chance to turn it into a great one. So how significant is this clash between Arsenal and Real Madrid? Yeah, huge. I mean, Real Madrid, it's the biggest club in world football. I think it's a brand and a name that everyone knows. And for Arsenal, you know, they've only played Real Madrid once before in European football before this tie.

9:43They had a famous win at the Bernabeu in 2006, Thierry Henry scoring the winning goal. And for fans, this is what you dream of. you dream of these big games. And for Arsenal to beat Real Madrid, who are the holders, they're the 15-time record winners of the competition. To knock them out would be a real statement of the tent and a sign of the progress they've made under the Mikel Arteta. So we're hearing a lot about the Bernabéu's retractable roof and that it's going to be closed for the game. Is this a bit of a psychological tactic that we're seeing here from Real Madrid? Yeah, I mean, it was interesting.

10:15It was chatting to some of the Spanish media last night saying what will they do with the roof? and they were saying they'll definitely want to have it closed. I think the atmosphere is just greater when you get it, when you've got that closed-in noise. It really brings it to life. When Manchester City came here early in the season, it was the same situation. I think for Arsenal, it would be quite unique. You know, we don't really get that in England stadiums in terms of football where you get the roof closed. I think it will help create the atmosphere that Real Madrid want, which is a hostile environment and a kind of belief that they can pull off what would be a remarkable comeback, really.

10:43So what do we know about the line-up then? Who's playing and who isn't? For Arsenal, it should probably be the team that played in the first leg. There was a bit of doubt over Thomas Partey, who went off injured at the weekend, but he's fine and plays. I think that's really important in the midfield. Bakayo Saka, who obviously had a bad hamstring injury in December, his comeback has almost been tailored to be for these two legs, and he's firing, so he should start. So I think for Arteta, as much as we spoke about having injuries all this season, I think he can name the same team he did in the first leg, which is important.

11:10For Real Madrid, they're probably going to make a few changes. Chouamani, who missed the first leg through suspension, he's back. So that's a big boost in their midfield. And I think probably the message from Ancelotti yesterday was Madrid need to play with heart and belief. And I think he's going to want to have an attacking team that will really go at Arsenal. So how have Arsenal's European performances this season changed the perception of the club among the top tier elite, do you think? I think they've grown a lot and they've actually, they've probably suited European football more than the Premier League.

11:39I think when they played in the Premier League, teams have sat deep. They've made it very difficult for Arsenal to break them down. And in Europe, teams haven't done that. They've been more willing to attack Arsenal, which has suited them. It's given them space to attack. But also defensively, they've been, other than Inter Milan, probably the best defensive team in the tournament. Certainly when you speak to people, when you go away to these trips and you speak to other journalists who cover, they see Arsenal as this brilliant defensive team, probably one of the best in Europe. And I think they now have a reputation that maybe two seasons ago when they were first getting back in the Champions League for a while.

12:10They didn't really have. I think teams do now respect them. And certainly if they were to knock out Real Madrid, that would grow. So what's the atmosphere like there now? Have fans travelled to be there? Are there huge numbers of people there? Yeah, I mean, I had a few Arsenal fans on my flight out yesterday and they were saying these tickets are like gold dust. These are the ones everyone wants. I think a few people have gone just to be in Madrid. I think it's that sense where it's going to be a historic night. I think fans just want to be in the city. In terms of within Madrid itself, the Madrid fans, I mean, the whole sort of talk around, even from last week when they lost that first leg, was about pulling off La Remontada, the comeback.

12:43That's been the message. You know, it's on the newspapers. It was in the press conferences. That's the belief that even 3-0 down doesn't matter when you're Real Madrid. You can pull it off. So two sort of conflicting emotions. But I think for Arsenal fans, the ones who've travelled are thinking that they're going to be here for a historic night. And Arsenal are in a great position to pull off what would be a massive result. So tell us where and when we can watch. and you'll be reporting live online, won't you? Yes, yeah. So it's an eight o 'clock kickoff. We'll be on TNT Sports. Yeah, we'll be live blogging on the standard as usual, reaction, analysis across it all.

13:15And yeah, it should be, hopefully, for Arsenal fans, a memorable night. And that's The Standard. For all the latest news, head to standard.co.uk and please do drop us a line at podcasts at standard.co.uk. This podcast returns tomorrow at four. We'll see you then. We'll see you next time.