UK inflation falls to 3.4%
Newsflash: UK inflation has fallen to its lowest level in two and a half years.
The Consumer Price Index has slowed to 3.4% in February, down from January’s 4%, a sign that prices rose at a slower rate last month.
That’s the lowest since September 2021, and a slightly larger fall than the City expected, data from the Office for National Statistics shows.
In the year to February 2024:
▪️ Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.8%, down from 4.2% in January.
▪️ Consumer Prices Index (CPI) rose by 3.4%, down from 4.0% in January.➡️ https://t.co/ObDycx6pDz pic.twitter.com/f9fuw78dFR
— Office for National Statistics (ONS) (@ONS) March 20, 2024
Key events
The financial markets are still expecting the Bank of England to cut interest rates three times this year, starting in the summer.
That would bring rates down to 4.5% by December, from 5.25% today.
Victoria Scholar, Head of Investment at interactive investor, tells us:
Inflation is certainly moving in the right direction, quicker than expected and is forecast to reach the 2% target in the months ahead. Global factors such as easing global supply chain pressures and cooling energy prices combined with higher interest rates from the Bank of England have helped price pressures retreat from a 40-year high seen in October 2022.
Markets are pricing in a longer wait for the first rate cut from the Bank of England than other central banks such as the US Federal Reserve with growing positive bets on the pound from hedge funds and traders reflecting this view.
UK rate futures markets are pointing to 71 basis points of rate cuts from the Bank of England by December, up very modestly from 67 basis points before today’s inflation data. Most economists anticipate the central bank will begin cutting in June.”
Today’s inflation report does not reflect the full impact of the cost of living squeeze,
Dr Sarah Cumbers, chief executive of the Royal Statistical Society, explains:
“While it’s good to see inflation coming down, we should remember that CPI was never intended to measure the impact of inflation on households.
“Its exclusion of interest payments such as mortgages and loans – and the greater weight it gives to higher spending households – means people’s experiences of inflation, particularly those on lower incomes, are not adequately reflected in the figures.
“I would encourage policymakers to take into account the Household Costs Indices, now published quarterly by ONS as the best way to understand the impact of inflation on different groups.”
The most recent Household Costs Indices, released last month, showed that households with a mortage had the highest inflation rate at the end of last year, followed by private renters, with outright owner occupiers experiencing the lowest rate.
Annual motor fuel inflation is negative for twelfth consecutive month
Today’s inflation report confirms that motor fuel prices picked up in February, but was still cheaper than a year ago (when energy costs were much higher).
The average price of petrol rose by 2.3p per litre between January and February to 142.2p per litre, down from 148p per litre in February 2023, the ONS says.
Diesel prices rose by 3p per litre in February to 151.3p per litre, down from 169.5p in February 2023.
So overall, motor fuel prices fell by 6.5% in the year to February 2024, compared with a fall of 9.2% in the year to January.
Rachel Reeves MP points out that prices are still high, at a time when households are also being hit by rising taxes and higher mortgage rates.
The shadow chancellor says:
“After fourteen years of chaos and uncertainty under the Conservatives working people are worse off. Prices are still high, the tax burden is the highest it has been in seventy years and mortgage payments are going up.
Now Rishi Sunak is putting forward a reckless £46 billion unfunded tax plan to abolish National Insurance that would risk crashing the economy and re-running the disastrous Liz Truss experiment.
Britain cannot afford another five years of this failed Conservative government. It’s time for change and it’s time for Rishi Sunak to set the date for the election.”
Full story: UK inflation falls to 3.4% in February to lowest level for two and a half years
Phillip Inman
UK inflation fell to 3.4% in February – the lowest level for two and a half years – according to official figures that show the annual rate of price rises starting to ease again after remaining unchanged the previous month.
The decline in the consumer prices index (CPI) from 4% in January will give a boost to Rishi Sunak, who has pledged to reduce inflation, and add to speculation that the Bank of England will cut interest rates in the summer.
Most economists had predicted that February’s headline figure from the Office for National Statistics (ONS) would drop to 3.5% – the lowest since September 2021, when it was 3.1%. A reduction in the rate of inflation does not mean that prices are falling, just that they are rising more slowly.
Investors are betting that inflation will tumble further through the spring months, reflecting the sharp decline in the price of natural gas since last year and a slowdown in food price rises.
Hunt: The plan is working
Chancellor Jeremy Hunt has claimed that today’s fall in inflation “sets the scene for better economic condition”.
Welcoming the drop in inflation to 3.4% in February, Hunt says:
“The plan is working.
“Inflation has not just fallen decisively but is forecast to hit the 2% target within months.
“This sets the scene for better economic conditions which could allow further progress on our ambition to boost growth and make work pay by bringing down national insurance as we work towards abolishing the double tax on work – but only if we can do so without increasing borrowing or cutting funding for public services.”
Politicians seem, curiously, keener to take responsibility for inflation when it is on the way down. Back in the Autumn Statement of 2022, Hunt told MPs that “The Office for Budget Responsibility confirms global factors are the primary cause of current inflation.”
Some of those global factors, such as high oil prices and supply chain disruption, have faded.
But also, inflation is an annual measure – today’s data is telling us that the cost of living is 3.4% higher than in February 2023, when it was 10.4% higher than February 2022….
Food inflation lowest since January 2022
The largest downward contributions to the monthly change in inflation came from food, and restaurants and cafes, the ONS says.
Today’s inflation report shows that prices for food and non-alcoholic beverages rose by 5.0% in the year to February 2024, down from 6.9% in January.
The February figure is the lowest annual rate since January 2022.
The ONS reports that the annual rates for most types of food product eased between January and February 2024, with the largest effect coming from bread and cereals.
It says:
Overall, prices for bread and cereals rose by 0.3% on the month, compared with a rise of 2.3% between January and February 2023. Prices of packs of cakes and some bread products (for example, white sliced loaves) fell between January and February this year but rose a year ago. The resulting annual rate for bread and cereals in February 2024 was 6.0%, the lowest observed since March 2022.
Other smaller downward effects came from classes such as meat, vegetables, and milk, cheese and eggs. Overall, the annual rate eased in 10 of the 11 food and non-alcoholic beverages classes with oils and fats the exception; its annual rate rising from 8.0% in January to 8.3% in February 2024.
Core inflation also falls
Underlying inflation also eased in February.
Core CPI (which excludes energy, food, alcohol and tobacco) rose by 4.5% in the 12 months to February 2024, down from 5.1% in January.
Goods inflation slowed from 1.8% to 1.1%, while the CPI services annual rate eased from 6.5% to 6.1%.
On a monthly basis, inflaion rose by 0.6% in February 2024, the Office for National Statistics reports.
That’s rather slower than the 1.1% rise in prices recorded in February 2023.
UK inflation falls to 3.4%
Newsflash: UK inflation has fallen to its lowest level in two and a half years.
The Consumer Price Index has slowed to 3.4% in February, down from January’s 4%, a sign that prices rose at a slower rate last month.
That’s the lowest since September 2021, and a slightly larger fall than the City expected, data from the Office for National Statistics shows.
In the year to February 2024:
▪️ Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.8%, down from 4.2% in January.
▪️ Consumer Prices Index (CPI) rose by 3.4%, down from 4.0% in January.➡️ https://t.co/ObDycx6pDz pic.twitter.com/f9fuw78dFR
— Office for National Statistics (ONS) (@ONS) March 20, 2024
Deutsche Bank’s chief UK economist, Sanjay Raja, is also expecting a substantial drop in inflation this morning.
Raja told clients:
We expect headline and core inflation to continue their descent.
Weaker food, goods and some services prices — combined with large negative base effects — should see inflation take a big step down in February.
We see headline CPI slowing to 3.4% y-o-y (Jan: 4%). Core CPI, we think, will drop to 4.5% y-o-y (Jan: 5.1%).
Those ‘base effects’ are the jump in prices a year ago, which pushed inflation over 10% in February 2023.
Economist Ellie Henderson of Investec predicts a sharp drop in inflation for February, as last year’s big rises in costs for non-alcoholic drinks and clothing and footwear were not repeated this year.
But, she points out there are still inflationary pressures, as fuel prices rose last month.
Henderson adds:
“There is also the risk that the disruption in the Red Sea resulted in higher input costs for producers in February, some of which could have been passed onto the consumer.
“There is also the potential that the extra health certificate requirements that were introduced at the start of the month for medium-and-high-risk plant and meat imports from the EU caused a material increase in consumer prices.”
Introduction: UK inflation report coming up
Good morning.
Eyes in the City of London, and Westminster, are on UK inflation, with the latest cost of living data due at 7am this morning.
Inflation is expected to have slowed last month; economists estimate the Consumer Price Index (CPI) will drop to 3.5% for February.
That would be the lowest in almost two-and-a-half years (since September 2021), and mean prices are rising at a slower rate than January, when annual inflation was 4%.
A drop in inflation could encourage the Bank of England to consider cutting interest rates in the coming months – as its mandate is to keep inflation sustainably at 2%.
Kyle Rodda, senior financial market analyst at capital.com, explains:
UK inflation data will be a precursor to tomorrow’s Bank of England meeting, with forecasters projecting a meaningful drop in prices last month.
Core inflation is expected to moderate to 4.6% from 5.1% in February, while headline is tipped to decline to 3.5% from 4%. Inflation in the UK has been more stubborn than other G10 economies, partly due to elevated wage growth and energy price shocks.
The dynamic means the markets are pricing in relatively fewer cuts from the Bank of England than other major central banks.
The government will also be hoping for a substantial drop in inflation, as it would bolster Rishi Sunak’s claim that “the economy is turning a corner”, after it fell into recession at the end of last year.
The agenda
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7am GMT: UK inflation report for February
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9.30am GMT: UK house price and rental index for January
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10.15am GMT: UK bank bosses to face questions from Treasury Committe
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11am GMT: US mortgage applications data
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3pm GMT: Eurozone consumer confidence report
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6pm GMT: US Federal Reserve sets interest rates
