The rate of inflation eased back by more than expected in February, according to official figures released ahead of a predicted leap in the pace of price growth.
The Office for National Statistics (ONS) said the rolling annual rate for the consumer price index (CPI) measure of inflation stood at 2.8%, slowing from 3% the previous month.
ONS chief economist Grant Fitzner said of the shift: “Clothing prices, particularly for women’s clothing, was the biggest driver of this month’s fall.
“This was only partially offset by small increases, for example, from alcoholic drinks.”
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Economists had expected a largely flat picture for the overall pace of price growth last month, but warned that it is expected to leap markedly in April when households face inflation-busting increases to many bills.
They include those for energy, unless you are on a fixed rate tariff, water, and council tax.
The figures, nevertheless, will be welcome for the chancellor ahead of a difficult spring statement to MPs in the Commons.
Higher inflation has added to government borrowing costs, reducing Rachel Reeves’ headroom to meet her spending rules.
The easing in inflation was bang in line with the expectations of the Bank of England amid intense speculation over the timing of the next interest rate cut.
Financial market investors are currently split on the prospects for a reduction at the next rate-setting meeting in May, given that the Bank is projecting CPI inflation of 3.7% by the autumn.
Two cuts are currently projected over the rest of the year, with a small majority expecting that May’s meeting will agree the first.
The Bank’s job, however, is made much more difficult by the ever shifting threats to prices posed by the Trump administration’s trade war.
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While some targeted tariffs have proved to be temporary to date, being withdrawn moments after they were imposed, duties on all US steel and aluminium imports have taken effect globally.
More clarity should emerge next week when a big escalation is threatened, with a broadening of US tariffs set to encapsulate the UK’s biggest trading partner, the European Union, alongside punitive charges on other nations with the largest trading imbalances with America.
Domestically, the Bank is also watching for costs being passed on by businesses from April as employer national insurance contribution (NIC) and National Living Wage (NLW) hikes , announced in October’s budget, come in to force at the same time as the bills go up.
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David Bharier, head of research at the British Chambers of Commerce, said: “Volatility will be a key feature for the next few months.
“SMEs (small and medium-sized businesses) are battling shocks from both home and abroad in the form of domestic tax increases and a looming global tariff war.
“Many firms tell us they will have to raise prices and rethink recruitment when NICs and NLW increases kick in next month. Investment is also likely to suffer until greater certainty emerges.”
