UK inflation falls to two-and-a-half-year low

Inflation rate draws closer to Bank of England's 2% target

UK inflation falls to two-and-a-half-year low

The UK’s inflation rate slowed to 3.4% in February, dropping from the 4% recorded in January.

Consumer price inflation (CPI) data published by the Office for National Statistics (ONS) on Wednesday indicated that prices rose at the slowest rate last month since September 2021.

On a monthly basis, the CPI saw a rise of 0.6%, which is a drop from the 1.1% increase noted in the same month of the previous year.

“Inflation eased in February to its lowest rate for nearly two and a half years,” said Grant Fitzner, chief economist at the Office for National Statistics, commenting on the latest CPI figures.

“Food prices were the main driver of the fall, with prices almost unchanged this year compared to a large rise last year, while restaurant and cafe prices rises also slowed. These falls were only partially offset by price rises at the pump and a further increase in rental costs.”

“After a brief blip, the UK is back on the disinflationary slide,” said Nicholas Hyett, investment manager at Wealth Club. “That, together with the news the economy fell into recession at the back end of last year, will make it easier for the Bank of England to consider rate cuts tomorrow – though we still think central bankers will ultimately choose to leave rates unchanged in March.

 “Inflation may be moving lower, but it’s still some 70% above target. The recent fall is being driven largely by global food prices, which could prove highly volatile, and core inflation remains higher – although it too is falling.

 “With economic growth showing signs of recovery, there’s probably more risk in central bankers going easy on inflation than there is in accidently smothering the economy – for now at least.”

Ben Thompson, deputy chief executive of Mortgage Advice Bureau, noted that February’s inflation being only 1.4% above the Bank of England’s target of 2% could signal a turning point for interest rates.

“It could be the starting gun we’ve been waiting for, in terms of getting clearer visibility on exactly when base rate may start at last to come down,” he said. “The last month has seen volatility in swap rates, with some lenders increasing their mortgage rates as a consequence.

“However, with inflationary pressures now easing, this could lead to an easing in swap rates and therefore the start of mortgage rates softening again. If this happens, it would be perfectly in time for the busy period of year for the housing market, and would also help many thousands of borrowers to remortgage to better rates once their current deals have come to an end.”

Thompson advised those considering purchasing a home or remortgaging in the near future to start preparing now. He recommended consulting with a broker to become “mortgage ready” and suggested that homeowners looking to remortgage soon should proactively exploring available deals.

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