Cost of living

Inflation falls to two and a half year low of 3.4%

supermarket food
Lower food prices helped bring the rate of inflation down

UK inflation has fallen to 3.4%, better than expectations and its lowest level in two and a half years.

The Consumer Price Index for February is down from January’s 4%. Prices are now rising at their slowest since September 2021 when it was 3.1%, according to the Office for National Statistics.

The easing in the annual rate was a result of prices rising by 0.6% on the month compared with a rise of 1.1% a year earlier.

Analysts were expecting that rate to fall by 3.5% and this latest fall will lend more support to calls for early interest rate cuts.

The largest downward contributions to the fall came from food, and restaurants and cafes, while the largest upward contributions came from housing and household services, and motor fuels.

Prices for food and non-alcoholic beverages rose by 5% in February, down from 7% in January.

Chancellor Jeremy Hunt said:  “The plan is working. Inflation has not just fallen decisively but is forecast to hit the 2% target within months.

“This sets the scene for better economic conditions which could allow further progress on our ambition to boost growth and make work pay by bringing down national insurance as we work towards abolishing the double tax on work – but only if we can do so without increasing borrowing or cutting funding for public services.”

David Bharier, head of research at the British Chambers of Commerce, said: “These positive trends were to be expected as many of the key drivers have begun to fall away. 

“However, we are now two years into this inflation shock and prices have simply stabilised at a much higher level. Uncertainty for businesses remains high. Further rises in the minimum wage are likely to impact pay differentials, and the ongoing crisis in Gaza, alongside shipping disruption in the Red Sea, is a source of great instability. 

“It is also a concern that the owner occupiers’ housing (OOH) component of CPIH has risen by 6%, indicating the adverse impact of higher interest rates.”

Alpesh Paleja, lead economist, CBI, said:  “Inflation is heading in the right direction, and should fall below the Bank of England’s 2% target sometime in the Spring. However, the path beyond this is likely to be bumpy: shifting base effects mean that it will likely rise back above 2% later in the year, before settling down more sustainably.

“While the Bank of England are likely to look through these ups and downs, they will still want to see more definitive movement on domestic price pressures before committing to cutting interest rates.” 

Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, said: “The Bank’s rate-setters will likely want more evidence of falling inflationary pressures before cutting interest rates. But, as it stands, there is nothing to dissuade the Monetary Policy Committee from cutting the base rate in the early summer.” 

… more follows

Leave a Reply

Your email address will not be published. Required fields are marked as *

This site uses Akismet to reduce spam. Learn how your comment data is processed.