UK CPI inflation fell to 3.4% in February, down sharply from January’s 4% reading and the lowest level for over two years. Economists had predicted inflation to fall to 3.5%.
Falling food prices were a large component of lower inflation everyday staples resulting in lower average grocery baskets. The drop in inflation is good news for consumers with signs the cost of living crisis is easing – but prices are still rising.
“The fall in food inflation, especially on staples like bread and cereals, to the lowest level since January 2022, is a big deal for households. Most Britons have felt inflation’s pinch the most through the amount they spend on food – which has disproportionately hit lower earners because they spend a greater portion of their income on food,” said Myron Jobson, Senior Personal Finance Analyst at interactive investor.
Rishi Sunak will claim credit for falling inflation, whilst in reality the shallow recession the UK entered at the end of last year was responsible for the drop in prices.
Today’s reading is unlikely to change expectations of what the Bank of England will do on Thursday when the voting committee are predicted to keep rates on hold.
It does, however, put pressure on the Bank of England to cut rates sooner rather than later given the poor state of the UK economy. UK 10-year bond yields fell to 4.12%.
“UK inflation continued to cool in February, leaving headline CPI on track to achieve the BoE’s 2% goal in the spring,” said Michael Brown Senior Research Strategist at Pepperstone.
“These effects, coupled with the upcoming fall in energy prices as the price cap is reduced, should see achievement of the MPC’s mandate around April, though policymakers will seek more data than just the headline inflation rate before being ready to pivot towards rate cuts.”
