The UK’s annual inflation rate fell in March for a second consecutive month, dropping to 3.2% – a two-and-a-half-year low – easing pressure on households amid the cost of living crisis.

Figures from the Office for National Statistics (ONS) show inflation continued to fall from 3.4% in February, as food prices rose at a slower pace than a year earlier. City economists and the Bank of England had forecast a slightly larger decline to 3.1%.

The last time inflation as measured by the consumer prices index was lower was in September 2021, when it was 3.1%. A reduction in the rate of inflation does not mean that prices are falling, just that they are rising more slowly.

Rachel Reeves, the shadow chancellor, said: “Conservative ministers will be hitting the airwaves today to tell the British people that they have never had it so good. However, after 14 years of economic failure under the Conservatives, working people are worse off.

“Prices are still high in the shops, monthly mortgage bills are going up and inflation is still higher than the Bank of England’s target.”

The chancellor, Jeremy Hunt, said: “The plan is working: inflation is falling faster than expected, down from over 11% to 3.2%, the lowest level in nearly two and a half years, helping people’s money go further.”

The ONS said cooling inflation in food and drink prices contributed the most to the decline, as the prices of some bakery products, including chocolate biscuits and crumpets, fell between February and March but rose between the same period a year ago.

Overall, food prices increased by 4%, down from a peak of 19.1% in March 2023 when food and drink inflation reached the highest level since the late 1970s.

It comes as the Bank considers the timing of a first cut in interest rates after ramping up borrowing costs to the highest level since the 2008 financial crisis in response to soaring inflation. The measure for the annual increase in living costs reached a 41-year high of 11.1% in October 2022 after the Covid pandemic and Russia’s invasion of Ukraine.

Core inflation – which excludes energy, food and tobacco prices – and is closely monitored by the Bank – also slowed to 4.2% from 4.5% in February, although it was marginally higher than forecast by City economists.

Services inflation, which the Bank also watches closely, eased slightly to 6% from 6.1% a month earlier, the ONS said.

Economists expect a further decline in inflation in April, with the potential to fall below the Bank’s 2% target after a sharp drop in household gas and electricity bills to the lowest level for two years.

Suren Thiru, the economics director at the Institute of Chartered Accountants in England and Wales, said: “A landmark decline in inflation is locked in for April, as lower energy bills following the reduction in Ofgem’s energy price cap will have almost certainly pulled the headline rate below the Bank of England’s 2% target.

“Though this [March] inflation fall won’t be sufficient to drive a cut in interest rates next month, this outturn may persuade more rate setters to vote to loosen policy, providing a clear signal that rate cuts are on the horizon.”