Inflation made an unexpected dip from 3% in January to 2.8% in February – but forecasts suggest it will increase again in next few months.
The Consumer Prices Index shows the overall price paid for goods and services has increased by 2.8% in the last year to February, which is less than the increase seen in January.
When broken down, the main cause of the dip to inflation was a fall in prices for clothing and footwear. However, food inflation remained at 3.3% in February.
Danni Hewson, AJ Bell head of financial analysis, said: “This dip in inflation was slightly deeper than had been expected by economists, but it’s hard to get excited about one month’s data when we’re all hyper aware that things are about to get more difficult once again.”
She added: “The fall in the price of women’s clothing is only really helpful if you needed to update your spring wardrobe. Meanwhile food inflation held steady and as the duty on non-draught alcohol jumped up the price of our favourite tipple became more expensive.”
For homeowners inflation is a useful indicator of what might happen to their mortgage rates in the coming months. The Bank of England’s (BoE) target for inflation is 2%. By keeping interest rates higher the BoE can help bring inflation down to the correct level.
Today’s easing of inflation, according to Hewson, means expectations of the BoE cutting the base rate in May have ‘edged up slightly’. But, she added, the members of the BoE’s Monetary Policy Committee who make the decision on interest rates still have a lot to consider.”
And David Hollingworth, associate director at L&C Mortgages said any cuts to interest rates would be gradual.
“Today’s news may not do enough to materially shift the forecasting,” he said, “and although this should undoubtedly be seen as good news, it’s widely anticipated that the rate of inflation will lift again in coming months.
“The rate is still appreciably higher than the Bank of England’s target rate. With further rises to come, the message for interest rates is likely to remain one of rate cuts being on the cards but feeding through gradually.
“Mortgage rates have been much more stable recently, with most lenders making small improvements when they can. Although today’s figures are positive, I don’t expect to see a significant change to that pattern. Similarly, we’ll hope that markets will give a calm reception to any inflation increases in the months to come.”
