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In February, inflation dropped to 3.4%, down from January’s 4%, inching closer to the Bank of England’s target of 2%.
This marks the slowest rise in the cost of living since September 2021, when it stood at 3.1%. Inflation, which measures the rate at which prices increase over time, has been on a gradual decline since reaching 11.1% in October 2022, its highest level in 40 years.
The Office for National Statistics (ONS) attributes the main reason for this drop to a slowdown in food price inflation. While prices are not yet decreasing, they are rising at a slower pace compared to before. Sectors such as food and non-alcoholic beverages, as well as restaurants and cafes, experienced significant deceleration in price rises. Similarly, there was a slowdown in the price increase for alcohol and tobacco, clothing and footwear. However, housing and household services costs, along with motor fuel, continued to rise.
Grant Fitzner, chief economist at the ONS, highlighted the notable decline in food price inflation, which has seen 11 consecutive monthly decreases. This trend has been supported by price rises at the pump and increased rental costs, although the overall trend remains downwards.
Despite speculation about potential price impacts from disruptions in the Red Sea, such concerns have not materialized. This is largely due to the strengthening of the sterling rate and the UK’s enhanced ability to pay for imports.
Karen Betts, chief executive of the Food and Drink Federation, attributed the fall in food price inflation to manufacturers’ efforts to keep prices down for consumers. However, she cautioned against underlying factors such as adverse weather conditions affecting agriculture and continued rises in labor costs.
Economists anticipate that the drop in inflation will reinforce expectations of a future interest rate cut by the Bank of England. This sentiment precedes the Bank’s upcoming interest rate decision, with rates expected to remain at 5.25%.
Chancellor Jeremy Hunt acknowledged the relief brought by the inflation figures but maintained that it was premature to determine whether tax cuts would be feasible before the general election. He emphasized the potential impact of reduced interest rates on mortgage payments.
In contrast, Labour criticized the Conservatives, asserting that after 14 years under their governance, working people are worse off. Shadow Chancellor Rachel Reeves highlighted persistent high prices, increased tax burdens, and rising mortgage payments as ongoing challenges faced by the public.
