U.K. Inflation Cools More Than Expected in February, But Fresh Climb Expected

• British inflation slowed more than expected in February, bringing some relief to consumers ahead of a likely new pick-up in price growth and before Finance Minister Rachel Reeves' budget update speech on Wednesday, March 26, 2025.
• The Office for National Statistics said that in February, consumer prices rose by 2.8% in annual terms after a 3.0% increase in January. This occurred as clothing and footwear prices fell for the first time in over three years. Economists polled by Reuters had pointed to a reading of 2.9% in February, while the Bank of England (BoE) had expected 2.8%.
• Notwithstanding, Economists warned that rising energy prices will push inflation up again soon. "February's slowdown is a false dawn as notable near-term price rises are already baked in, with next month's jump in energy bills and national insurance likely to push inflation perilously close to 4% sooner rather than later," Suren Thiru, Economics Director at accountancy body ICAEW, said. He also noted that the BoE would remain wary about price pressures.
• On the flip side, Luke Bartholomew, deputy chief economist at investment firm Aberdeen, said the BoE would probably take comfort from Wednesday's data. "This report does not fundamentally change the inflation outlook, but it should keep the path clear for another interest rate cut in May," Bartholomew said.
• Last week, the BoE warned investors against assuming borrowing costs would be cut quickly. The Office for National Statistics said services inflation, closely watched by the BoE, held at an annual rate of 5.0%, against expectations for a fall to 4.9%.
• Overall, the central bank expects consumer price inflation to peak at 3.75% in the third quarter of this year - almost double its 2% target - driven mostly by higher energy costs and regulated tariffs for household utility bills and bus fares.