Spring Statement: UK inflation falls more than expected to 2.8% in February
UK inflation fell more than expected to 2.8 per cent in February, in a boost to chancellor Rachel Reeves as she prepares to deliver a high-stakes Spring Statement.
The annual increase in consumer prices, reported by the Office for National Statistics on Wednesday, was below the 2.9 per cent forecast by economists polled by Reuters and the 3 per cent recorded in January.
The decline was driven by a fall in clothing prices, which were down 0.6 per cent in the 12 months to February.
Services inflation, a key measure of underlying price pressures for rate-setters, held at 5 per cent in February, according to the ONS. Economists had predicted a decline to 4.9 per cent.
Persistent price pressures have prompted the Bank of England to take a “gradual” approach to cutting interest rates despite lacklustre growth. Last week it held rates at 4.5 per cent.
Joe Nellis, economic adviser at MHA, the accountancy firm, said 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.
Following the release of the ONS data, the pound weakened 0.3 per cent to $1.290 while the yield on the rate-sensitive two-year gilt fell 0.04 percentage points to 4.26 per cent.
Traders also raised their bets that the BoE would deliver two further quarter-point rate cuts this year from 60 per cent to 75 per cent, according to levels implied by the swaps market.
The inflation figures come as Reeves is set to outline more than £10bn of spending cuts later today in an attempt to repair a hole in the public finances caused by anaemic growth and higher borrowing costs.
