The rate of inflation for the 12 months to February has been confirmed by the Office of National Statistics (ONS) today. The consumer price index (CPI) level of inflation now currently stands at 2.8%.
This is a fall of 0.2 percentage points compared to January’s level of 3%, which was the highest the UK had seen in 10 months. It is also above the UK’s target level of 2%. Last month’s level forced the Bank of England to hold its base rate at 4.5% last week rather than cut it.
The drop is lower than expected, as analysts believed it would drop to 2.9%. It’s important to note that with the drop today, prices are not going down; they are just rising at a slower rate. Today’s inflation figure comes as Chancellor Rachel Reeves is set to share her Spring Statement.
According to the ONS, the drop in inflation was driven by the price of clothing, housing, and household services. This is the first drop in the price of clothing since 2021. The drop was slightly offset by the small rise in alcoholic drinks.
The inflation report states: “The easing in the annual rate was mainly the result of a large downward effect from garments for women, with small downward effects coming from a range of women’s clothing items. There were additional small downward effects from children’s clothing, and other clothing and clothing accessories, such as hats and women’s scarves.”
Core inflation – which doesn’t include energy, food, alcohol and tobacco – rose by 3.5%. This is a drop of 0.2 percentage points from January. Today’s UK inflation report shows that prices of alcohol and tobacco rose by 5.7% in the year to February, up from 4.9% in January. The CPI goods annual rate slowed from 1% to 0.8%, while the CPI services annual rate was unchanged at 5%.
Commenting on today’s announcement, Jonny Black, Chief Client Experience Officer at Aberdeen Adviser, noted that although it had dipped, the road ahead is “anything but smooth”. He said: “The Bank of England still expects it to peak at 3.7% by summer. And, in such volatile conditions, sudden shocks in the global economy could push this higher, faster.”
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Alice Haine, Personal Finance Analyst at the online investment platform Bestinvest by Evelyn Partners, also noted this for the Chancellor today, adding that “Awful April” was set to hit households hard. She said: “Awful April’ is just around the corner with households expected to absorb a raft of bill and tax hikes from higher energy, water and broadband bills to rises in council tax, car tax and stamp duty.
“The Bank of England expects price increases to peak at 3.75% later this year due to the inflationary effect caused by the tax hike on businesses, along with global uncertainty arising from US President Donald Trump’s trade war. This means interest rates may stay higher for longer as the central bank strives, once again, to keep inflationary pressures at bay, something already evident from its decision to keep the base rate at 4.5% earlier this month – not great news for households weighed down by heavy debts or oversized mortgages.”
Inflation measures how prices have changed over time. For example, if something cost £1 last year but now costs £1.03, then the rate of inflation on that particular item is 3%. However, it’s important to note that when inflation goes down, it does not mean prices are falling – it just means that prices are rising but at a slower rate.
The main CPI figure is used as an average – so individual prices of some goods may be higher or lower than this. The Office for National Statistics (ONS) releases inflation data every month and uses a “basket of goods” and services, which are regularly updated, to track prices.
The Bank of England uses the base rate to control inflation in the UK. The Consumer Price Index (CPI) measure of inflation represents how the price of goods has changed over time and when inflation rises – prices go up.
When inflation is low, stable, and predictable, it helps people and businesses better plan their savings, spending, and investments. This, in turn, helps the economy grow – which is what governments always want. The goal is to keep inflation as close to 2% as possible – so the bank will act if price rises are too low as well as too high.
The Bank of England began raising interest rates in 2021 to try and bring inflation down. The theory is that when interest rates go up, the cost of borrowing becomes more expensive – then, in turn, people should then spend less, bringing demand and prices down. The base rate stood at just 0.1% in December 2021 and rose to 5.25% in August 2023. It remained the same until August 2024, when it was cut by 0.25 percentage points to 5%, and since then, it has fallen to 4.5%.
Inflation began to rise in 2021 and peaked at 11.1% in October 2022. The steady increase was largely due to higher costs of energy and food. Demand for energy increased after Covid, and this was exasperated by the Russian invasion of Ukraine. The war also pushed up food prices, due to rising costs for fertilisers and animal feed.
Both energy and food prices have come down in recent months, although they are still higher than before. The UK has been trying to keep inflation stable over the last 12 months, although external factors have pushed it higher since the end of last year.
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