Inflation has fallen to 3.4 per cent in the year to February 2024, a drop from 4 per cent in January, the Office for National Statistics has revealed.
This fall was fueled by cheaper food prices, which was the biggest downward contributor to the February inflation rate.
Conversely, housing costs and fuel provided some upward pressure to the rate.
Fidelity International investment director, Tom Stevenson described these figures as “significant” and “slightly bigger than forecast”.
A similar sentiment was shared by Standard Life managing director for retail direct, Dean Butler, who pointed out this is the first significant fall in inflation for a few months and that the news will come as a “huge relief” to households.
Additionally, he pointed out that, with the energy price cap set to fall from the 1st April, “we’re hopefully on a trajectory to a less challenging set of economic conditions”.
Finder.com financial adviser, George Sweeney, added: "These figures, alongside the latest 0.2 per cent UK GDP growth figures, and a slowdown in wage growth, shows that the overall plan is working.
“We may have swerved a significant recession, avoided a wage price spiral, and brought inflation down to a more manageable level.”
Looking to the future, Stevenson stated inflation is likely to continue dropping through the spring as cheaper gas and electricity from April drives household energy costs lower.
However, the key unanswered question, according to him, is whether, and by how much, price growth bounces back from target in the second half of the year - the Bank’s central expectation.
Core inflation
Additionally, core inflation, which excludes energy, food, alcohol and tobacco, also saw a decrease since last month, falling to 4.5 per cent in the 12 months to February 2024.
This is lower than the recorded 5.1 per cent in January and significantly below the recent peak of 7.1 per cent recorded in May 2023.
Members of the industry also shared their thoughts on what today’s announcements could mean for the Bank of England and the Monetary Policy Committee as they set the base rate.
“The expectation remains that interest rates will stay on hold until June at least, and will fall back only slowly from the current 5.25 per cent,” Stevenson stated.
“Inflation may briefly touch the Bank’s target in the next few months but is not expected to settle at 2 per cent until 2026.”
Sweeney predicted today’s figures indicate “good news” for the possibility of the Bank of England lowering the base rate in 2024.
However, he warned that those hoping that this new data will lead to a faster rate-lowering schedule, shouldn’t “hold your breath”.
“The Monetary Policy Committee at the BoE is likely to be pleased with the direction of these key figures, but, they’re not a famously fast-moving bunch,” he explained.
tom.dunstan@ft.com
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