US Edition
Inflation has fallen to its lowest level in almost two and a half years, paving the way for interest rate cuts this summer.
The rate of price rises, as measured by the consumer price index (CPI), slowed to 3.4pc in February, according to the Office for National Statistics (ONS). It marked the lowest reading since September 2021.
Inflation fell from 4pc in January, a drop slightly greater than analysts had expected.
The better-than-forecast data raised hopes that the Bank of England will begin cutting interest rates in the coming months, with rate setters set to meet on Thursday.
Chancellor Jeremy Hunt said the fall in inflation signalled the Government’s plan for the economy was working and paved the way for future tax cuts.
Meanwhile, Rishi Sunak said Britain had “turned a corner after the shocks of the past few years” and was “in a new economic moment”.
The Prime Minister said he believed “2024 will prove to be the year that the economy bounces back”.
He rebuffed talk of a backbench plot to oust him that could derail his economic plans, telling the BBC: “What’s important is the future of our country, and people’s financial security and the peace of mind that they rightly deserve.”
However, economists said the Bank was still likely to hold borrowing costs at their current rate of 5.25pc at this week’s meeting.
It came as the Federal Reserve signalled it was not yet ready to cut rates.
The US central bank held interest rates in a range of 5.25pc to 5.5pc, as Chairman Jerome Powell warned the American economy was still running too hot to declare victory in the battle against inflation.
US inflation rose unexpectedly in February and Mr Powell told reporters in Washington on Wednesday it was too early to say whether this was more than just a “bump in the road”.
However, the Fed upgraded its forecasts for US growth next year and said it was still likely to cut borrowing costs three times at some point this year, which sparked a rally in stock markets.
In Britain, statisticians said the fall in inflation was driven by slowing food inflation. Grant Fitzner, the ONS’s chief economist, said price rises in restaurants and cafes also slowed.
He added that costs were easing across a range of goods and services. Mr Fitzner said: “The general trend continues to be lower.”
Investors expect the Bank to begin cutting interest rates in June. However, some analysts believe Threadneedle Street has already waited too long, with economists at Citi predicting a “screeching reversal” in the coming months.
Wednesday’s figures revealed core inflation fell faster than expected to 4.5pc from 5.1pc in January, while services inflation, which the Bank is watching closely, eased to 6.1pc from 6.5pc, although this was slightly higher than expected.
Analysts at Bank of America said Bank policymakers were likely to remain split on rates. They said: “The emphasis from here is likely to still be on sticky services inflation, ongoing and upcoming wage negotiations, and the pass-through of the upcoming increase in the national living wage.”
Mr Hunt said: “The plan is working. Inflation has not just fallen decisively but is forecast to hit the 2pc target within months.
“This sets the scene for better economic conditions which could allow further progress on our ambition to boost growth and make work pay by bringing down National Insurance as we work towards abolishing the double tax on work - but only if we can do so without increasing borrowing or cutting funding for public services.”