Published: Wed, March 21, 2018
Finance | By Cynthia Curry

United Kingdom inflation slows in February as Brexit's impact on pound fades

United Kingdom inflation slows in February as Brexit's impact on pound fades

CPI inflation fell from 3.0% in January to 2.7% in February, according to the latest ONS data.

The situation may be further improved this year, says Bank of England.

Core inflation, which excludes the prices of food, non-alcoholic beverages, petrol and energy, was unchanged at 4.1 percent year-on-year in February, while on a month-on-month basis it quickened to 1.1 percent from 0.2 percent previously.

On average, prices increased by 0.8% between January 2018 and February 2018, Statistics SA announced on Tuesday.

Paul Hollingsworth, senior United Kingdom economist at Capital Economics, said the fall in inflation "confirms that we have now reached a turning point" but that this did not diminish the case for a rate hike in May.

The Consumer Prices Index including owner-occupiers' housing costs (CPIH) - the ONS' preferred measure of inflation - was 2.5 per cent last month, down from 2.7 per cent the month before. It expects wages to grow more quickly than inflation.

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

The price of petrol and food played a key part in this month's figures.

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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.

The fall in food prices was partly down to a shortage of salad and vegetables previous year when bad weather hit crops in southern Mediterranean countries, the ONS said.

Incomes data do lag prices, but if the trends continue (inflation easing and wages increasing) then it is likely that many millions of people will see their real incomes start rising again by the end of the year.

"We are increasing the National Living Wage which is already helping the lowest earners see their pay rise by nearly 7% above inflation". The Brexit referendum pushed down the pound, in turn hiking the cost of imported goods.

It increased interest rates in November for the first time in more than a decade.

The Bank of England is expected to keep interest rates on hold at 0.5% on Thursday, but the meeting will be watched closely amid expectations over another hike in May.

There are signs that the Brexit hit to prices has peaked, however, though the BoE expects a residual impact to last years.

It also said it believed inflation would fall back to target this year.

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