Inflation drops to lowest level in nearly two and a half years

The Office of National Statistics (ONS) has reported that February 2024 saw inflation fall to its lowest since September 2021, with its headline Consumer Price Index (CPI) now at 3.4%.

The fall, down 0.6 percentage points on January’s figure, has helped largely by a slowdown in food and drink price rises. The largest upward contributions to inflation came from housing and household services, and motor fuels, as well as increases in prices in the hospitality sector.

Compared with January, food and drink prices at the supermarket have risen just 0.2% month-on-month, and are 5% more expensive than at the same time last year, although much slowed by the double-digit increases seen previously in many product categories. Restaurant and hotel prices have seen a 1% month-on-month uplift in prices, and are up 6% on February 2023.

The scale of the fall in inflation has been larger than previously forecast, with price rises slowed by a stronger sterling making imports cheaper. Fears of disruption to global trade passing through the Red Sea due to ongoing conflicts in the region have also not materialised – supply chain disruption owing to coronavirus restrictions in Chinese port was among the factors that drove up inflation in 2021 and 2022.

Despite the latest fall, inflation remains higher in the UK than in other comparable economies, with France (3.2%), Germany (2.7%), the USA (2.2%) and the EU as a whole (2.8%) all also seeing drops in inflation in February 2024.

While February saw inflation fall to a recent low, the Bank of England is not expected to lower interest rates below their current level of 5.25% as a result, given that the CPI remains above the Bank’s 2% target; Its Monetary Policy Committee is due to meet next on 21st March.