UK inflation unexpectedly falls to 2.8% in boost for Reeves

UK inflation eased by more than expected last month, new official figures show, delivering a boost to Chancellor Rachel Reeves ahead of her spring statement.

The prices of clothes and shoes fell for the first time in more than three years, the Office for National Statistics (ONS) said.

The rate of Consumer Prices Index (CPI) inflation fell to 2.8% in February from 3% in January.

Most analysts had been expecting CPI inflation to come in at 2.9% for February.

The latest figures mean the cost of living is still rising for households across the UK – and inflation remains above the Bank of England’s 2% target – but at a much slower rate than in recent years.

Economists have cautioned that the tide could turn next month when price rises for the new tax year kick in.

But the bigger-than-forecast February drop could provide some relief for Ms Reeves as she prepares to deliver her spring statement on Wednesday afternoon.

She is expected to announce spending cuts for some Government departments and respond to weaker economic growth projections from the Government’s official forecaster.

ONS chief economist Grant Fitzner said: “Inflation eased in February. Clothing prices, particularly for women’s clothes, was the biggest driver for this month’s fall.

“This was only partially offset by small increases, for example, from alcoholic drinks.”

Overall prices for clothing and footwear fell by 0.6% in the 12 months to February – which the ONS said was the first drop since October 2021.

Prices typically rise between January and February, when Christmas sales end and new ranges are launched.

Women’s clothes, accessories like hats and scarves, and children’s clothing all helped bring down the inflation rate last month.

Housing inflation, including rents, also slowed in February, as did admission prices for live music.

On the other hand, alcohol and tobacco prices jumped higher, following a tax increase on bottled alcoholic drinks at the beginning of the month.

Responding to the latest data, Chief Secretary to the Treasury Darren Jones said: “Our number one mission is kickstarting growth to raise living standards for working people, that is why we are protecting working people’s payslips from higher taxes.”

Economists are expecting inflation to rise again in the coming months with a sharp increase in April.

Bills such as electricity and water will rise for some households and businesses next month, as well as taxes including council tax and employer national insurance.

“Awful April risks kick-starting inflation again,” Sarah Coles, head of personal finance at Hargreaves Lansdown, said.

“The energy price cap is forecast to go up by £85 to £1,823 – which would be its highest level since the beginning of last year.

“This is on top of rises in everything from water bills – up £123 on average – to council tax – up an average of £109.

“The Bank of England is expecting inflation to peak at 3.7% later this year.”

Food inflation has jumped significantly in recent months and is forecast to hit 5% by the end of 2025 as a result of the costs arising from the budget

Trade group the British Retail Consortium (BRC) warned that food inflation is likely to rise this year when tax changes announced in the autumn budget come into effect.

Kris Hamer, the BRC’s director of insight, said: “There was good news as some dairy products such as milk, cheese and eggs all saw price drops on the month.

“Heavy clothing and footwear discounting continued into February, as fashion sales continue to suffer due to unseasonal weather throughout the month.

“Food inflation has jumped significantly in recent months and is forecast to hit 5% by the end of 2025 as a result of the costs arising from the budget.

“On top of this, retailers are still burdened by an outdated business rates system.”

The latest figures from the ONS showed that services inflation – a measure which is watched closely by the Bank of England – remained at 5% last month.

James Smith, developed market economist for ING, said the level was higher than analysts were expecting, adding: “This matters because services are the part of the inflation story that the Bank of England cares about most.”

The Bank’s policymakers therefore “might be tempted to conclude that the net impact of April’s tax hike is to push up prices rather than reduce jobs”, he suggested.

Meanwhile, CPIH – a measure of inflation which includes owner-occupiers’ housing costs – fell to 3.7% in February, from 3.9% in January,

The Retail Prices Index (RPI) rate of inflation fell to 3.4% in February from 3.6% in January.