Inflation slows in February as Brexit hit to pound fades

21 March, 2018, 08:14 | Author: Natasha Holloway
  • UK consumer price

The unexpected fall in inflation comes thanks to a drop in fuel and food prices, according to the Office for National Statistics.

"Hotel prices also fell and the cost of ferry tickets rose more slowly than past year, when prices were collected on Valentine's Day when many people could have been taking mini-breaks", he said.

Manufacturers increased the prices they charged by 2.6 percent compared with 2.8 percent in January, the slowest increase since November 2016 and slightly weaker than the Reuters poll consensus forecast of 2.7 percent.

"This fallback in inflation therefore provides little reason for the Bank of England to hold back from gradually raising interest rates", said Andrew Sentance, a former BoE rate-setter who is now an economic adviser with accountancy firm PwC. There is a speculation that the European Central Bank may raise its interest rates in May.

The lower inflation figures released today does not necessarily mean lower interest rates, said Annabel Bishop, a chief economist at Investec told Xinhua on Tuesday.

The country's inflation slowed down from 3% to 2.7%, which is the lowest level since July 2017. The data suggests that pressure on households as a result of accelerating inflation and wage stagnation may be over.

ONS figures due to be published on Wednesday are expected to show that pay growth edged up to an annual rate of 2.6 percent in the three months to January.

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Month-on-month, consumer prices increased 0.8 percent in February, slightly slower than the expected 0.9 percent.

The BoE expects wages to grow more quickly than inflation later this year.

However, the index increased 3.9 percent from the previous year period.

Khalaf said that while falling inflation should go some way to alleviating the consumer squeeze, annual price rises are still high for essential items like electricity, food and transport.

"We are increasing the National Living Wage which is already helping the lowest earners see their pay rise by nearly 7 per cent above inflation".

In the contrary, Luigi Marinus, portfolio manager at PPS Investments said, "This relatively low level of inflation will put pressure on the Reserve Bank to cut interest rates in their next meeting". As the post-referendum currency effect fell out of the year on year comparisons, price rises were always likely to ease back.

Jacob Deppe, the head of trading at online trading platform Infinox, added: "While the Monetary Policy Committee (MPC) meets on Thursday it seems highly unlikely that it will agree to hike rates just yet".



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