Inflation Continues to Ease

Reacting to today’s monthly inflation figures Dr George Dibb, associate director for economic policy at IPPR, said: 

“Today’s news that inflation is falling is welcome, but it doesn’t mean prices are falling – just that they are rising less fast. The details of where prices are still rising the fastest also show we are entering a new phase of the inflationary period with food prices and restaurants making the largest downward contribution.  

“The Bank of England’s high interest rates continue to cause pain in the economy. Indicators are heading in the right direction, with goods inflation, services inflation and ‘core’ inflation all falling this month, so we want to see interest rates come down. Alongside this, government must also make a shift away from the tax-cuts-at-all-costs strategy towards the much-needed prioritisation of investment into public services.” 

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, the wealth manager, comments:  

“CPI inflation eased to 3.4% in the 12 months to February, falling more than expected and raising hopes for households under financial stress that the cost-of-living crisis is finally being consigned to history. Comfortingly, core CPI inflation, which strips out the more volatile items such as food, energy and tobacco, also eased to 4.5% in February, a promising sign for the Bank of England as it mulls when to make interest rate cuts. “

Naturally, most households would welcome an interest rate cut tomorrow, but the BoE is expected to keep interest rates at the current level for the fifth successive meeting following 14 consecutive increases between December 2021 and August 2023. With the first rate cut not expected until the summer, all eyes are pinned on what the central bank has to say tomorrow to see if there are any hints of earlier action. 

Keeping the headline interest rate on pause may seem amiss considering the UK fell into a technical recession in the second half of last year, however, this is something it may have already emerged from after January saw an 0.2% uplift in economic output. The labour market is also softening, with vacancies falling for the 20th consecutive period and wage growth easing, although it remains high.  

For now, however, the BoE is likely to want more consistent evidence that inflationary pressures really are easing before it initiates an interest rate cut. This means borrowing costs could remain higher for longer – not the news households will want to hear as they struggle to balance their budgets after a challenging couple of years.  

Jasmine says…

MoneyMagpie founder, Jasmine Birtles, says “it’s helpful to see the inflation rate go down, but it is slow and is not likely to translate into lower interest rates soon either.

“Consumers are not noticing the improvement in their day-to-day spending either. Taxation is high and this month and next month we are seeing a lot of bills go up including broadband and mobile phones, Council Tax, TV licences, train fares, water bills and more. It will help that the energy price cap is coming down in April, and again in July, and that food prices seem to be softening a little, but prices will have to come down significantly in order to make the ordinary consumer feel more confident and flush!”