UK inflation eased to 2.8% in February, down from 3% in January, according to data from the Office for National Statistics. The decline came in below economists’ forecasts of 2.9%, marking the lowest inflation rate since July 2021. The unexpected drop offers some respite for consumers and policymakers, although broader economic challenges remain.
A key driver of the decline was a fall in clothing prices, particularly for women’s and children’s apparel, which saw their first monthly price decrease since October 2021. However, inflationary pressures remain in other parts of the economy. Prices for alcohol and tobacco rose, and services inflation stayed elevated at 5%, reflecting persistent cost pressures in areas like hospitality and personal care.
Core inflation, which strips out volatile components such as food and energy, also fell slightly—from 3.7% to 3.5%. Despite this easing, the Bank of England still expects inflation to rise later in the year, projecting a peak of around 3.7%. That forecast is based on anticipated increases in energy and utility bills, which could reverse recent gains.
In light of current data, the Bank of England has kept its benchmark interest rate unchanged at 4.5%. Financial markets are now factoring in a growing likelihood of rate cuts, with the probability of a reduction in May estimated at 55%. Investors are closely watching how the central bank balances its inflation-fighting mandate with concerns about slowing growth.
Chancellor Rachel Reeves is expected to address these economic dynamics in the upcoming Spring Statement. With inflation easing for now, she may find room to propose measures that support consumer spending while maintaining fiscal discipline.
Still, economists warn that the recent dip may be temporary. The outlook for the second half of the year remains uncertain, particularly if energy prices rise as forecast. As the government and the Bank of England weigh their next steps, stability in inflation will be key to shaping both monetary and fiscal policy in the months ahead.
