UK Inflation Falls More Than Expected

UK CPI figures show inflation fell to 3.4% in February.

Is inflation trending back towards 2%?

UK CPI figures show that inflation has fallen to 3.4% from last month's 4%, better than the expected 3.5%. UK inflation is now at its lowest level in more than two years.

The UK nonetheless lags other major economies, and inflation is proving difficult to bring back to the Bank of England's 2% target. Eurozone inflation stands at 2.8%, and the latest US CPI reading was 2.2%.

UK Core Inflation dropped to 4.5% from January's 5.1%: Still high, but better than the 4.6% forecast.

Lower food prices were a key contributor to the improved figures, along with hospitality industry and goods and services. Fuel remains an inflationary influence. Further falls in inflation are expected in the coming months, since energy prices will drop in April. Weighing against that, an expected increase in the minimum wage would be an inflationary pressure.

Cuts Incoming

The Bank of England's Monetary Policy Committee (MPC) meets tomorrow, but there is no indication that a rate cut is on the cards this time around. Policymakers will want to ensure that the trajectory for inflation remains firmly downwards first.

Market expectations are now firmly that the Bank of England will cut interest rates in June, down from their current level of 5.25%: A 16-year high.

The pound was slightly weaker against the dollar, due to the increased expectation of a forthcoming cut.

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