The rate of inflation in the UK decreased to 3.4% in February, the lowest it has been in two and a half years. This decrease comes after a period of stagnant price increases in the previous month.
The larger-than-expected drop in the CPI (consumer prices index), from 4% in January, will benefit Rishi Sunak, who has promised to decrease inflation. This also raises speculation that the Bank of England will lower interest rates during the summer.
According to economic experts, the Office for National Statistics (ONS) was expected to report a decrease in February’s headline figure to 3.5%, which would be the lowest since September 2021 at 3.1%. It should be noted that a decrease in inflation rate does not necessarily mean a decrease in prices, but rather a slower increase.
Investors are placing bets on a decrease in inflation during the upcoming months, due to the significant drop in natural gas prices since last year and a slowdown in the increase of food prices.
The Bank has a goal of keeping inflation at 2%. The central bank projects that the Consumer Price Index (CPI) will be below 2% for the month of April and for most of the summer. However, it is anticipated that the policymakers of the central bank will not make any changes to their base interest rate, which currently stands at 5.25%, during their meeting on Thursday.
The chief UK economist at Capital Economics, Paul Dales, forecasted a decrease in inflation to around 1% after April. This unexpected and significant decline would potentially motivate the Bank to reduce interest rates in the summer.
According to Dales, it is expected that inflation will drop below 2% in April and continue to decrease towards 1%. This may lead the BoE to begin reducing interest rates in the summer and bring them down to 3% by next year.
The decrease in February’s CPI was present in most categories, as food inflation went from 7% to 5% and inflation for restaurant and hotel prices decreased from 7% to 6%. The measurement for core inflation, which excludes unstable factors like oil and food prices, dropped from 5.1% to 4.5%.
The central bank closely monitors services inflation to gauge any decrease in domestic inflation, but it fell by only 0.1 percentage point, from 6.5% to 6.1%, which was less than anticipated.
Dales stated that inflation is not lasting longer than the Bank of England predicted and is following the anticipated trajectory that could result in interest rate decreases.
The government’s economic strategies have shown success, according to Jeremy Hunt, the chancellor, as indicated by a significant decrease in inflation.
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“The foundation is laid for improved economic circumstances, creating potential for more advancements in our efforts to enhance growth and increase wages by reducing national insurance and ultimately eliminating the dual taxation on labor. However, this can only be achieved if we can do so without increasing borrowing or reducing funding for public services,” he stated.
Rachel Reeves, the Labour Party’s opponent, rejected Hunt’s statement. The deputy finance minister stated that costs continue to be elevated, despite the fact that taxes are at their highest point in 70 years and mortgage payments are increasing.
In February of last year, the yearly inflation rate dropped to 10.1% after reaching a high of 11.1% in October 2022.
Source: theguardian.com
