By Marcus Leach

The UK’s Consumer Price Index (CPI) dropped in March to 4%, down from 4.4% in February, according to data released today, Tuesday, by the Office for National Statistics.

The data release led to an immediate weakening of the pound against the euro and dollar, plummeting to a five and a half month low of 1.1266 against the euro, and tumbled half a cent against the dollar to a one week low of $1.6240.

“The CPI data has given the Bank of England a fair degree of breathing room," Mark Bolsom, Head of the UK Trading Desk at Travelex Global Business Payments, said.

"With Sentance leaving the MPC next month, it removes the possibility of a rate hike in May, and therefore the pound will continue to weaken. This all fits in with our big picture view; growth is slow, inflation is still too high and fiscal austerity has started in earnest.”

Inflation remains a key concern for UK importers and exporters, according to the latest figures released today by the Travelex Confidence Index. It found that three in five importers and exporters said that rising inflation was damaging their business and impacting their competitiveness abroad.

“Before the budget announcement, the cost of fuel was the number one source of concern for British importers and exporters," David Sear, Global Managing Director at Travelex Global Business Payments said.

"The announcement of the long-awaited fuel duty stabiliser should go some way into soothing their concern over the rising cost of petrol, although wage demands will remain a source of anxiety.”

The Travelex Confidence Index, carried out by business payment specialists, Travelex Global Business Payments, found that overall, UK importers and exporters were buoyed by the Budget in March, which laid out plans for an export-led recovery. Confidence in an export-driven recovery rose to 7% since February - the highest level since June 2010. March also marked the first increase in trade confidence since November 2010.

"Hopes for an export-led recovery in Britain were boosted again today after trade figures showed that the UK’s trade deficit narrowed again in February, as goods exports rose by 2.9 per cent but goods imports fell by 3.2 per cent, compared with January. The news should help to offset some of the negative impact sterling is seeing from softer inflation data, also released this morning," David Sear said.