- CPI falls to 3.4% in February after holding firm at 4% the previous month
- Food inflation falls to 5% – 12 months ago it stood at a record high of 18% as salad shortages contributed to high prices
- Service and core inflation both fell but increased housing costs and prices at the pump put pressure on households
Danni Hewson, head of financial analysis at AJ Bell, comments on the latest UK inflation figures:
“There is no doubt inflation is moving in the right direction. Just think back to this time last year when CPI was in double digits and food inflation hit a tortuous 18% as peppers, cucumbers and salad leaves vanished from supermarket shelves.
“A much more manageable 3.4%, cooler than had been expected, has already impacted market expectation of how many rate cuts the Bank of England might be able to push through by the end of the year. Money markets are once again pricing in four or even the off chance of five cuts by the end of the year, where yesterday just three seemed possible.
“Today’s figures are unlikely to provide much more than a talking point for MPC members at their meeting tomorrow. The anticipated impact of a falling energy price cap will have already stoked expectation that the Bank’s 2% target is within reaching distance. Until that point a twist of the hand isn’t expected.
“For households, bruised and bloody after two years of rising prices, today’s number won’t provide a great deal of comfort. For mortgage holders who have already dropped off ultra-low fixed rates, adjustments will have been made and some would have been deeply uncomfortable.
“The latest Which? survey shows many mortgage holders have been robbing Peter to pay Paul, missing payments on credit cards or energy bills, just to make sure the roof over their head is paid up to date.
“Because whilst the price cap has come down, absent that government cash dropping into bank accounts in £66 or £67 instalments and most households have actually been paying more for their energy over the last few months.
“Add to that the fact that everyone is feeling inflation weary. Savings have been raided, unwanted property has been sold off and people have been trading down wherever they’ve been able to.
“With rental prices still at a premium and more than a million households heading towards that mortgage switching cliff edge this year, the cost-of-living crisis is still very real.
“Things are often darkest before the dawn and with producer input prices still falling there’s no doubt we are on the cusp of a new day. Some prices are coming down and that heart stopping moment at the supermarket till has become easier as competition for market share continues to drive down the cost of many essentials.
“But we have all become brutally realistic about our changing fortunes. For every cut to National Insurance or drop in the energy price cap, another bill seems to appear to gobble up any extra pennies we might have been hoping would end up in our pockets.
“The Which? survey sums the situation up perfectly. A quarter of households think their financial situation will get better over the next year, but a third expect things will only get worse.”
