U.K. inflation remained steady, stubbornly above the 2 percent target in March, squeezing the purchasing power of consumers.
Nonetheless, pipeline inflation decreased significantly in March, adding to hopes of more stimulus from the central bank after the government broadened its capacity to increase easing even when inflation stays above the target.
Annual inflation stayed at 2.8 percent in March, data from the Office for National Statistics showed Tuesday, and matched expectations.
Month-on-month, the consumer price index gained 0.3 percent, in line with forecast, but slower than the 0.7 percent increase seen a month ago.
The new measure of inflation called CPIH also remained unchanged in March, at 2.6 percent. The index incorporates owner occupiers' housing costs.
The cost of recreation and culture sectors pushed up overall prices, while furniture and furnishing and motor fuel prices maintained largest downward contributions, the ONS said.
Inflation averaged 2.77 percent in the first quarter, which is almost in line with the 2.73 percent projected in the February quarterly Inflation Report.
Core inflation that excludes energy, food, alcoholic beverages and tobacco, rose marginally to 2.4 percent on a yearly basis in March from 2.3 percent in the previous month, while it was forecast to stay at the February level.
IHS Global Insight's Chief UK economist Howard Archer said inflation still seems likely to move just above 3 percent over the summer, which is worrying for growth prospects. However, he expects it to start retreating in the final months of 2013.
Further, Archer said the Bank of England will sooner or later decide further stimulative action is warranted, especially as muted earnings growth and significant spare capacity should keep a lid on underlying inflationary pressures.
Retail prices grew 3.3 percent in March from a year ago, following a 3.2 percent rise in the previous month. The annual rate matched economists' expectations.
An improved variant of the retail price index, RPIJ that is devised to meet international standards, advanced 2.7 percent, after increasing 2.6 percent in February.
A separate communique from ONS showed that both input and output price inflation eased notably in March, mirroring a slowdown in inflationary pressures.
The output price index for goods produced by British manufacturers rose 2 percent year-on-year in March, the slowest since July 2012, and below the 2.3 percent increase logged in February. The latest outcome was in line with expectations.
Driven by a 0.9 percent rise in tobacco and alcohol product prices, factory gate prices rose 0.3 percent on a monthly basis, following a 0.8 percent increase in February. This was also in line with expectations.
Core factory gate prices, that excludes the more volatile food, beverages, tobacco and petroleum products, rose 1.3 percent compared to the same period last year. The annual rate of inflation was the same as that in February.
Total input prices rose 0.4 percent year-on-year in March compared with a rise of 2.1 percent in the year to February. Economists had forecast a 0.7 percent increase.
Month-on-month, input prices fell 0.1 percent in March, slower than the expected 0.2 percent decline, but in contrast to a rise of 2.8 percent seen in February.
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