UK inflation falls to 2.8% in February
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The news: UK inflation fell more than expected during February to 2.8%, down from 3.0% in the 12 months to January, according to data published by the Office for National Statistics (ONS).
The numbers: Economists polled by Reuters had expected the consumer price index (CPI) to reach 2.9% in the 12 months to February, but a fall in clothing prices which were down 0.6% in February drove the stronger decline.
Core inflation, which excludes energy, food, alcohol and tobacco, rose 3.5% in February, down from 3.7% in January.
The pound weakened 0.3% to USD1.29 ($2.04) on the inflation data, while the rate-sensitive two-year gilt fell 0.04 percentage points to 4.26%
The context: The ONS said that the slowing rate into February 2025 reflected downward contributions from four divisions and upward contributions from five divisions. The largest downward contributions came from clothing and footwear, housing and household services, and recreation and culture.
The inflation data will be watched closely by the UK government as Finance Minister Rachel Reeves prepares to deliver her Spring Statement to Parliament later on Wednesday. The Statement will outline her spending and taxation plans, and the UK’s economic outlook. Reeves is expected to detail over £10 billion in spending cuts as the country struggles to improve growth and manage high borrowing costs.
The Bank of England left interest rates at 4.5% at its policy meeting last week, as the central bank works to manage uncertainty around global trade policies and potential US tariffs. The BoE also halved its 2025 UK growth forecast to 0.75% and warned that it expects inflation to rise to 3.7% by Q3 this year as energy prices increase.
What they said: Joe Nellis, economic adviser at MHA, the accountancy firm, told the FT that while the drop in headline inflation was “a welcome surprise for the government”, it was unlikely to change the BoE’s gradual approach to cutting rates.
The sources: Office for National Statistics, Financial Times
