UK inflation falls to lowest level for more than two years but cost of living still high

New figures from the Office for National Statistics show that in February, UK inflation fell to 3.4% - down from 4% in January

UK inflation has fallen to its lowest level for nearly two and a half years, slowing by more than economists had predicted, official data for February has shown.

The Office for National Statistics (ONS) said that Consumer Prices Index inflation stood at 3.4% in February - down from 4% in January and the lowest level since September 2021.

Most economists had been expecting inflation at 3.5% last month.

The drop was driven by a slowing in the growth of food prices with the report showing prices for food and non-alcoholic beverages rising by 5.0% in the year to February 2024, down from 6.9% in January.

But food in the UK today is almost 30% more expensive than it was in September 2021, ITV News Economics and Business Editor Joel Hills said.

The drop will raise hopes there will also be a cut to interest rates on Thursday. Policymakers are widely expected to keep rates on hold at 5.25%, but the steep fall in the CPI is likely to reinforce expectations that the Bank of England is moving closer to cutting rates later this year.

ONS Chief Economist Grant Fitzner said: “Inflation eased in February to its lowest rate for nearly two and half years.

“Food prices were the main driver of the fall, with prices almost unchanged this year compared with a large rise last year, while restaurant and café price rises also slowed.

“These falls were only partially offset by price rises at the pump and a further increase in rental costs.”

In response to fresh inflation figures, the chancellor Jeremy Hunt said: "Families today will heave a sigh of relief that we are firmly on track to bring inflation down to its target 2%.

"But most encouragingly food inflation, which was nearly 20% a year ago, is now just 5%, and what it shows is that the plan to bring inflation down... is working."

“This sets the scene for better economic conditions which could allow further progress on our ambition to boost growth and make work pay by bringing down national insurance as we work towards abolishing the double tax on work – but only if we can do so without increasing borrowing or cutting funding for public services.”

The chancellor would not be drawn on whether the fall would allow him to announce pre-election tax cuts in an autumn statement.

Shadow chancellor Rachel Reeves said “prices are still high” despite the latest fall in the rate of inflation.

“After fourteen years of chaos and uncertainty under the Conservatives working people are worse off,” she said.

“Prices are still high, the tax burden is the highest it has been in seventy years and mortgage payments are going up.

“Now Rishi Sunak is putting forward a reckless £46 billion unfunded tax plan to abolish National Insurance that would risk crashing the economy and re-running the disastrous Liz Truss experiment.

“Britain cannot afford another five years of this failed Conservative government. It’s time for change and it’s time for Rishi Sunak to set the date for the election.”

The ONS said it was not seeing any sign yet of an impact on consumer prices from the Red Sea disruption, following attacks from Houthi rebels on cargo ships going through the trade route.

There had been fears that it could push up food costs, as well as prices on clothing and goods, in particular from Asia.

The ONS said any Red Sea impact would likely show first in the trade data, but said it was not seeing any of that coming through in those figures either.

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