UK inflation falls to its lowest level in two years in February – what this means for you
British inflation fell more than expected last month, to the lowest level in more than two years.
The Office for National Statistics (ONS) said consumer price index inflation was 3.4% in February – down from 4% in January and the lowest level since September 2021.
Most economists had expected inflation to reach 3.5% last month.
Inflation is now closer to the Bank of England’s 2% target ahead of tomorrow’s latest interest rate decision.
Policymakers are widely expected to leave rates unchanged at 5.25%, but the sharp drop could push the Bank closer to a rate cut later this year.
Chancellor of the Exchequer Jeremy Hunt said: “The plan is working. Inflation has not only fallen decisively, but is expected to reach the 2% target within months.
“This sets the stage for better economic conditions that could enable further progress in our ambition to boost growth and make work pay by abolishing national insurance, as we work to eliminate double taxation on work – but only if we can do it without increasing borrowing.” or cutting funding for public services.”
Inflation is a measure of how the price of goods and services has changed over the past year.
Grant Fitzner, chief economist at the ONS, said: “Inflation fell to the lowest level in almost two-and-a-half years in February.
“Food prices were the main driver of the decline, with prices remaining virtually unchanged this year compared to a large increase last year, while price increases in restaurants and cafes also slowed.
“These declines were only partially offset by price increases at the pump and a further increase in rental costs.”
Food and non-alcoholic beverage prices rose 5% in the period to February 2024, up from 7% in January.
This figure is the lowest annual figure since January 2022.
On a monthly basis, food inflation rose 0.2% – far less than the steep increases seen a year earlier.
The annual figure for restaurants and hotels also fell in February, from 7.1% in January to 6%.
It comes after inflation unexpectedly rose to 4% at the end of last year.
It was the first time since February 2023 that interest rates rose and came as a surprise to many economists.
High inflation means the cost of daily necessities, such as food and energy, is rising, which means your money doesn’t go as far.
What it means for your money
High inflation means the cost of daily necessities is rising and therefore your money doesn’t go as far.
When inflation falls, it doesn’t mean that prices stop rising, just that they rise more slowly.
Alice Haine, personal finance analyst at Bestinvest, said: “Falling inflation will certainly be welcomed by households whose finances have been forced to absorb rising price increases during the peak cost of living.
“Of course, prices are still rising, but at a slower pace – a huge comfort considering inflation reached a worrying high of 11.1% in October 2022.”
The Bank of England (BoE) and the British central bank may increase the key interest rate in an attempt to reduce inflation.
This is good news for people who have savings, as they may see a boost.
It’s bad news for homeowners because it also means mortgage rates will rise, meaning more pressure for homeowners.
But falling inflation is providing some support for mortgage holders and potential buyers hoping for interest rate cuts.
The Bank’s base rate is currently 5.25% and the Central Bank will meet again tomorrow (March 21).
Alice said: ‘Most households would welcome a rate cut tomorrow, but the BoE is expected to keep rates at current levels for the fifth time in a row, after fourteen consecutive increases between December 2021 and August 2023.
“With the first rate cut not expected until the summer, all eyes are on what the central bank has to say tomorrow to see if there are indications of earlier action.”
This means borrowing costs could remain higher for longer as the BoE waits for more consistent evidence that inflation is slowing.
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