The Bank of England is facing calls to slash interest rates in May following a fall in inflation for the second month in a row. Tumbling petrol prices and a drop in the cost of computer games helped push March’s Consumer Prices Index (CPI) inflation to 2.6%, down from 2.8% in February.

The steeper-than-expected fall has raised hopes that mortgage holders’ interest rates could be reduced from the present 4.5%.

However, there are also strong concerns inflation will rise this month because of higher energy and water bills, as well as businesses passing on increases in taxes and labour costs to consumers.

Shadow Chancellor Mel Stride said working families were “paying the price” for Rachel Reeves’s choices.

Blaming her for inflation being above the target rate of 2%, he said: “Inflation remains above target and we know from official forecasts that price rises are set to increase further this year because of the Chancellor’s choices. The Conservatives left Labour with inflation bang on target but the Chancellor’s reckless union payouts, tax hikes, and borrowing binge is driving up the cost of living.

“Be in no doubt, the Chancellor’s choices are keeping inflation higher for longer and working families are paying the price.”

Julian Jessop, of the Institute of Economic Affairs, expected inflation to “rebound to at least 3% in April” but said the “labour market is cooling”.

He said: “The upshot is that the Bank now has the green light to cut interest rates again in May.”

Mr Jessop argued there is a “strong case” for a half-point cut.

John Longworth, chairman of the Independent Business Network, backed a cut in interest rates.

He said: “I think an interest rate cut would help an ailing economy, currently [being] trashed by Ms Reeves.”

But he added: “Of course, ending net zero madness would have a much greater impact.”

However, Maxwell Marlow, of the Adam Smith Institute, said the Bank’s Monetary Policy Committee (MPC) is likely to hold interest rates “as the UK battles to keep inflation on a downwards trend”.

“Inflation is a silent tax, destroying wealth and wages, so it is right that the MPC keeps track with its interest rates,” he said.

The Chancellor struck an upbeat note, saying: “Inflation falling for two months in a row, wages growing faster than prices, and positive growth figures are encouraging signs that our Plan for Change is working, but there is more to be done.”