The UK inflation rate fell to 2.8% in the year to February, in a boost to chancellor Rachel Reeves as she prepares to deliver a high-stakes spring statement.
The latest figures from the Office for National Statistics (ONS) come as Reeves is set to outline more than £10 billion of spending cuts in an attempt to repair a hole in the public finances caused by anaemic growth and higher borrowing costs.
Economists had expected inflation to remain unchanged, having jumped from 2.5% in December to 3% in January.
It remains above the 2% target set by the Bank of England, which expects inflation to hit 3.7% in the third quarter of this year.
ONS chief economist Grant Fitzner said: “Inflation eased in February. Clothing prices, particularly for women’s clothes, were the biggest driver for this month’s fall. This was only partially offset by small increases, for example, from alcoholic drinks.”
Overall prices for clothing and footwear fell by 0.6% in the 12 months to February, compared with a rise of 1.8% in the year to January.
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February’s figure was the first negative annual rate since October 2021, as retailers offered more discounts as they tried to shift stock.
Ahead of the spring statement, Rachel Reeves has pledged that her mission is “security for working people and renewal for our country”.
Core inflation, which excludes food, alcohol and tobacco, also fell in February, easing to 3.5% from 3.7% in January. But services inflation, a key indicator of domestic price pressures, was unchanged at 5%.
Darren Jones, chief secretary to the Treasury, said: “Our number one mission is kick-starting growth to raise living standards for working people, that is why we are protecting working people’s payslips from higher taxes.
“In a changing world, we’re focused on delivering economic stability to secure people’s finances — freezing fuel duty, protecting the triple lock and increasing the national living wage by £1,400 a year for full-time workers, while going further and faster to drive growth through our Plan for Change.”
Reeves is due to deliver her spring statement today at around 12.30pm. The chancellor has been focused on bringing down the cost of living and growing the UK economy, but the latest data has shown the economy has actually shrunk.
The Office for Budget Responsibility (OBR) is widely expected to cut its forecast for economic growth later today, following similar recent revisions by the Bank of England and the Organisation for Economic Co-operation and Development (OECD).
Yael Selfin, chief economist at KPMG UK, said the UK’s central bankers will be happy with the drop in core CPI. She explained: “The Bank of England will be reassured by today’s fall in underlying inflation, with core inflation easing. We expect underlying inflationary pressures to fall further over the coming months.
“That will hopefully allow the MPC to look through the expected near-term increase in headline inflation and resume cutting interest rates in the upcoming May meeting.”
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Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “Inflation at 2.8% may be a vast improvement on the peak of 11.1% at the height of the great financial squeeze in October 2022, but the outlook for households is far from rosy.
“‘Awful April’ is just around the corner with households expected to absorb a raft of bill and tax hikes from higher energy, water and broadband bills to rises in council tax, car tax and stamp duty.”
Inflation will probably be back above 3% in April and around 3.5% by September, according to Capital Economics, as a result of rising utility prices. Water bills are expected to jump 26% in April.
Chief UK economist Paul Dales said: “The Bank has signalled it’s becoming more worried that the coming rises in inflation will prevent wage growth from slowing from its recent rates of around 6%.
“That’s why we have pencilled in the Bank pausing the rate cutting cycle in August and resuming rate cuts in November. The risk is that the pause becomes official in May and/or lasts longer.”
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