Official figures released on Wednesday revealed that price rises in the U.K. eased more than expected in February, sparking speculation that the Bank of England may soon begin cutting interest rates. The Office for National Statistics reported that inflation, as measured by the consumer price index, dropped to 3.4% last month, marking its lowest level since September 2021, down from 4% in January. The decline was primarily attributed to a reduction in food price inflation.
The decrease surpassed analysts' predictions, who had anticipated a drop to 3.6%. While inflation remains above the Bank of England's 2% target, the downward trend is evident. Inflation had surged to over 11% at the end of 2022 following Russia's invasion of Ukraine, which drove up energy costs significantly.
The unexpected decline in inflation comes on the eve of the Bank of England's interest rate decision announcement. Market expectations suggest that the central bank will maintain the main interest rate at a 16-year high of 5.25%. Investors will closely scrutinize the meeting minutes for indications of potential interest rate cuts, which could lead to reduced mortgage rates.
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, remarked, 'This notable decline is further evidence that the U.K. is fast approaching the finish line in its battle against surging inflation.'
Following the lead of other central banks worldwide, the Bank of England had raised interest rates aggressively in late 2021 to combat inflation triggered by supply chain disruptions during the pandemic and the Ukraine conflict. The tightening monetary policy, aimed at curbing spending by making borrowing more expensive, has played a role in lowering inflation globally.
The governing Conservative Party in Britain is hopeful that declining inflation and potential interest rate cuts could generate a positive sentiment ahead of the upcoming general election, scheduled by January 2025. Recent opinion polls indicate a significant lead for the main opposition Labour Party, signaling a potential victory over the Conservatives, who have been in power since 2010.
