Inflation fell faster than expected last month, raising questions for the Bank of England ahead of its latest interest rate decision.
Figures from the Office for National Statistics (ONS) showed that the headline rate of inflation dropped to 3.4 per cent in February, down from four per cent the month before.
Economists had expected a reading of 3.6 per cent.
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Core inflation – which strips out volatile components such as food and energy – dropped to 4.5 per cent from 5.1 per cent in January.
The figures come just a day before the Bank of England announces its latest decision on interest rates.
Having peaked at over 11 per cent in October 2022, inflation has fallen much more rapidly than economists expected as the impact of the energy price shock has receded. Despite this, the Bank is likely to leave rates on hold when it meets tomorrow.
Alongside progress on inflation, policymakers are looking for further easing in wage pressures. Rate-setters are concerned that stubborn wage growth, which remains at more than twice the level consistent with the Bank’s two per cent inflation target, could prevent inflation returning to target.
Earlier this month, Huw Pill, the Bank’s chief economist, warned that rate cuts were still “some way off,” reflecting the approach taken by central banks around the world.
The European Central Bank left rates on hold at its most recent meeting, with Christine Lagarde saying policymakers were not yet “sufficiently confident” to cut rates. The Fed announces its latest decision later this evening.
Markets think the Bank will start cutting rates in the summer, with June the earliest likely date.