UK inflation falls by more than expected in February, triggering talk of lower interest rates
Price rises in the U.K. eased more than anticipated in February, raising expectations that the Bank of England may start cutting interest rates in the next few months
LONDON — Price rises in the U.K. eased more than anticipated in February, official figures showed Wednesday, raising expectations that with the cost-of-living crisis abating, the Bank of England may start cutting interest rates in the next few months.
The Office for National Statistics said inflation, as measured by the consumer price index, fell to 3.4%, its lowest level since September 2021, from 4% in January. The agency said easing food price increases were largely behind the fall.
The decrease was bigger than anticipated. Analysts had expected a decline to 3.6%.
Inflation is still running higher than the Bank of England's target of 2% but the direction of the move appears clear. Inflation hit a high above 11% at the end of 2022 in the wake of Russia's invasion of Ukraine, which led to sharp increases in energy costs.
The bigger-than-anticipated decline comes a day before the nine rate-setters at the bank announce their latest interest rate decision. The view in financial markets is that they will keep the main interest rate at a 16-year high of 5.25%.
The meeting minutes will be assessed to see how much thought policymakers are giving to cutting interest rates, which should feed through to lower mortgage rates.
“Moderating inflation may encourage the bank to strengthen the signal for a first rate cut in the second quarter,” said Kallum Pickering, senior economist at Berenberg Bank.
The Bank of England, like the U.S. Fed and other central banks around the world, raised interest rates aggressively in late 2021 from near zero to counter price rises first
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