According to the report from the Office for National Statistics (ONS), in February consumer prices rose by 3.4% per year after an increase by 4% in January. The latest reading was the lowest since September 2021. Economists had expected inflation to slow to 3.5%. This data appeared the day before the meeting of the Bank of England, while market participants expect the Central Bank to maintain the status quo. Disinflation in the UK has been gradual, which probably means that the Bank of England will cut rates in the second quarter. At the moment, the Bank of England is expected to make the first cut at the June meeting. However, progress in the fight against inflation and restrained activity at least increases the likelihood that the Bank of England's policy easing may be implemented sooner than is currently expected. Overall, the March meeting could provide an indication of when policymakers will consider the timing of a “pivot” to monetary easing.
The ONS said that the largest downward contributions to the CPI annual rates came from food, and restaurants and cafes, while the largest upward contributions came from housing and household services, and motor fuels.
Meanwhile, core CPI - which excludes energy, food, alcohol and tobacco - rose by 4.5% per annum (the lowest rate since January 2022) after an increase by 5.1% in January. Consensus estimates suggested an increase by 4.6% per annum. On a monthly basis, core consumer prices rose by 0.6%, compared with the 0.9% decrease in January and the market estimate of a 0.7% increase.
The data also showed that on a monthly basis, the consumer price index increased by 0.6%, offsetting the January drop (-0.6%). Economists expected a 0.7% increase.