Cost of living

Rate cut nears as inflation expected to fall to 3.5%

supermarket food
Food prices have been falling along with energy costs

Inflation figures due out this week should show prices falling to a two-year low, providing more support for a series of interest rate cuts this year.

Economists expect Wednesday’s consumer prices inflation for February to come in at 3.5%, down sharply from 4% at the beginning of the year and its weakest since September 2021.

Price growth hit a peak of 11.1% in October 2022, following the Ukraine invasion and a hike in interest rates.

In recent months global energy and food costs have been falling and households will see a further fall from next month when the latest price cap is applied.

Some economists are now forecasting that prices might even fall below the Bank of England’s 2% target, adding further reason to cut interest rates. Most still expect the first cuts in June in a coordinated move with the US Federal Reserve and the European Central Bank.

The Office for Budget Responsibility, the government’s independent fiscal watchdog, recently forecast that inflation would fall below the 2% target in the spring and would stay at this level for the rest of the year. The Bank’s own forecasts point to a uptick in the second half of 2024, falling to 2% next year.

The Bank’s monetary policy committee will announce its interest rate decision on Thursday with no expectations of a change from the current 5.25% base rate.

Services inflation, running at 6.5% in January, remains a concern as this forms the biggest sector of the economy.

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