UK inflation has fallen to 3 per cent, prompting hopes that an interest rate cut will follow.
The fall in the Consumer Price Index (CPI) data, published by the Office of National Statistics, follows a surprise rise in December to 3.4 per cent.
It shows a return to the gradual downward trend seen at the end of last year, with analysts estimating it remains on course to hit the government’s 2 per cent target by April.
After this week’s rising unemployment and slowing wage growth data, and a continually weak economy, it is hoped the fal could spur the Bank of England (BoE) to cut interest rates next month when the Monetary Policy Committee convenes to vote on 19 March.
Inflation hit a high of more than 11 per cent in October 2022, and while it has returned to more manageable levels in the past year, the pace has been slower than businesses and households would have liked, resulting in interest rates staying higher for longer.
Falling household bills and the reduction of the energy price cap in April are expected to contribute to bringing CPI inflation back to 2 per cent by spring. Food inflation is also expected to moderate, having been a big contributor to high inflation last year.
Tamsin Powell, consumer finance expert at Creditspring, cautioned that it was important to remember that slowing inflation does not mean lower prices – it means they are climbing at a lower rate than previously.
“Many households will be hoping this finally translates into a slightly cheaper weekly shop and fewer shocks at the checkout. For families who track every pound, even small slowdowns in food and energy price rises make a difference,” she said.
“But it’s important to keep this in perspective. Prices aren’t falling back to where they were – they’re just rising more slowly. For lower-income households who spend a larger share of their income on essentials like food, rent and utilities, budgets are still tight. A slower rise doesn’t undo the pressure built up over the past two years.”
Ahead of these latest inflation figures being confirmed, markets were predicting an 80 per cent chance of an interest rate cut in March, with another probable in June or July.
