Rachel Reeves relief as inflation dips to 2.6% - but worse is on the way

This morning's inflation data shows the Consumer Prices Index (CPI) fell to 2.6% in March, down from 2.8% in February.

On paper, it's a welcome sign that the cost-of-living crisis may finally be easing. But Reeves would be foolish to extend her celebrations, because the respite is unlikely to last.

The marginal dip was driven by falling fuel prices and a stabilisation in food costs. The only notable price rise came from clothing - a typical seasonal fluctuation.

But there's nothing typical about the storm that's brewing. April's tax hikes are only just coming into effect, and the fallout from US President Donald Trump's aggressive trade policy is still to be felt.

What we're looking at today is not a turning point. It's more likely to be the calm before the storm.

We desperately need inflation to fall. The cost-of-living crisis has dragged on for far too long.

Millions are still struggling under the weight of high food bills, rising mortgages and rents, and stubbornly expensive energy.

Any short-term relief is better than none. But for Reeves, the stakes are even higher.

The Chancellor is counting on falling inflation to paper over the cracks in her economic plan. Because when the consequences of her autumn Budget fully kick in, things are likely to get worse before they get better.

This month, Reeves' tax hikes hit the real economy.

Employers now face higher national insurance contributions, while the minimum wage has risen sharply.

The timing of these hikes are economically perilous. As firms pass on costs to consumers, price pressures will re-emerge.

The Bank of England expects inflation to rise again by summer, possibly peaking at 3.7%, while some analysts predict 4% or more.

That would undo much of today's modest gain and extend the agony for households and businesses alike.

And then there's Trump.

His escalating trade war is a nightmare for the UK and global economy. Blanket tariffs on imports will likely push global prices higher.

Britain, which imports vast quantities of goods, won't escape the fallout. Chinese companies might dump excess goods onto the UK and EU markets, offering some disinflationary relief.

But we don't want that either, because it will wipe out what's left of British industry.

The outlook is deeply fragile. Markets are pricing in up to four interest rate cuts by the Bank of England this year, which would be a boost for mortgage holders.

But markets were pricing in even more right cuts last year, and in the end we only got two.

Worse, any cuts will be aimed at counteracting a weakening economy, not celebrating a booming one.

If inflation rises too far again, as many fear, we may only get one or two.

Reeves is running out of room to manoeuvre.

Come the Autumn Budget, she seems likely to be forced into either more public expanding cuts or more tax hikes, or probably both.

Neither will help growth, confidence, or struggling households. Today's dip in inflation is good news, but changes little. The storm clouds are still gathering.