UK inflation experienced an unexpected decrease to 2.8 percent in February, providing a boost to Chancellor Rachel Reeves as she prepares to present a pivotal Spring Statement. The annual increase in consumer prices, announced by the Office for National Statistics on Wednesday, fell short of the 2.9 percent predicted by economists surveyed by Reuters and lower than the 3 percent recorded in January.
The decline in inflation was primarily influenced by a reduction in clothing prices, which decreased by 0.6 percent over the 12 months leading to February. This development occurs as Reeves is set to propose over £10 billion in spending cuts aimed at addressing a deficit in public finances that has resulted from slow economic growth and rising borrowing costs.
Ongoing price pressures have led the Bank of England to adopt a “gradual” approach to reducing interest rates, despite the sluggish economic growth. Last week, the central bank maintained rates at 4.5 percent. According to the ONS, services inflation, an essential indicator of underlying price pressures for policymakers, remained steady at 5 percent in February. Economists had anticipated a slight decrease to 4.9 percent.
Joe Nellis, an economic adviser at the accountancy firm MHA, noted that the decline in headline inflation was “a welcome surprise for the government ahead of the Spring Statement.” However, he indicated that this drop is unlikely to reverse the Bank of England’s recent cautious strategy toward cutting rates. Following the data release, the pound weakened by 0.2 percent to $1.292.
