NLFATION has plummeted, easing City fears on the costs of the national debt and prompting a rethink on when interest rates will rise.
Consumer price inflation was 0.4% in February, down from 0.7% in January and much lower than the City expected.
Some economists and Chancellor Rishi Sunak have lately worried that a sharp rise in inflation would impact government finances by increasing the cost of servicing the UK’s £2.1 trillion debt pile,
Petrol costs and wider transport prices are rising, butinflation remains far below the 2% target set by the Bank of England.
Paul Dales, the chief UK economist at the consultancy CapitalEconomics, said:
“The surprise fall in CPI inflation, whichdisplays the disinflationary effect from Covid-19 lockdowns, will delay the rebound to 2.0% and perhaps prompt the markets to reconsider their view that interest rates will rise next year.”
Jonathan Athow at the ONS said:
“A fall in clothing prices helped to ease inflation in February, traditionally a month where we would see these prices rise, but the impact of the pandemic has disrupted standard seasonal patterns. Elsewhere there were falls in the price of second-hand cars.
”However, prices at the pump rose this month, compared with a fall this time last year.”
Ed Monk, associate director, Personal Investing at Fidelity International, said: “Today’s numbers set up a potentially crucial few months. As well as lockdown being eased, household energy price falls will fallout of year-on-year comparisons and begin to add upward pressure to inflation numbers. Oil prices also remain elevated and will begin to be felt. The Bank of England expects inflation back at its 2% target by the end of 2021 but others expect it to come through even more strongly.”