Sunday, 22 April, 2018

United Kingdom inflation falls to 2.7 percent in February

United Kingdom inflation falls to 2.7 percent in February United Kingdom inflation falls to 2.7 percent in February
Jodi Jackson | 21 March, 2018, 08:17

In the latest United Kingdom inflation figures, the Consumer Prices Index (CPI) has dropped to 2.7 per cent in February - from 3 per cent in January, suggesting the squeeze on households may be ending.

"Inflation is still above target after all, and the Bank of England would love to build up some firepower to deploy in the event of an economic slowdown".

Inflation cooled in February as the impact of the Brexit-hit pound on everyday prices began to "work through the system".

Petrol prices fell on the month and food prices rose more slowly than in February 2017, he said.

Economists and the Bank believe inflation's upward march has run its course and will start to unwind over the coming months.

The Consumer Prices Index including owner-occupiers' housing costs (CPIH) - the ONS' preferred measure of inflation - was 2.5% last month, down from 2.7% the month before.

The largest downward contribution was transport and food prices, which rose by less than a year ago while prices for accommodation also dropped.

The BoE expects wages to grow more quickly than inflation later this year.

On a month-on-month basis, inflation rose to 0.8 percent in February from 0.3 percent in January.

The fall in food price growth was partly down to a shortage of salad and vegetables previous year when bad weather hit crops in southern Mediterranean countries, the ONS said.

Incomes data do lag prices, but if the trends continue (inflation easing and wages increasing) then it is likely that many millions of people will see their real incomes start rising again by the end of the year.

"We are increasing the National Living Wage which is already helping the lowest earners see their pay rise by nearly 7 per cent above inflation".

The move in inflation came largely in response to the double digit referendum-induced devaluation of Sterling, which raised the cost of imported goods for companies and consumers.

"This fallback in inflation therefore provides little reason for the Bank of England to hold back from gradually raising interest rates".

It increased interest rates in November for the first time in more than a decade.

However, Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said: "Inflation is falling back to the 2% target much more rapidly than the Monetary Policy Committee (MPC) expected - undermining the case for raising interest rates again as soon as May".

The BoE warned in February that it will raise interest rates faster than markets had been expecting if the inflation outlook evolves in line with its latest set of forecasts.

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