United Kingdom inflation slows to 2.7pc, say official data

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The U.K.'s annual inflation dropped to 2.7 percent in February, down from 3 percent in January, the Office for National Statistics reported today.

CPIH, which the ONS uses as its headline measure and which includes owner occupiers' housing costs, was 2.5% in February 2018, down from 2.7% in January 2018.

Lower petrol prices and cheaper hotel rooms - compared to a period a year ago when price readings were taken on Valentine's Day - were among the reasons for the decline, which was slightly bigger than expected.

"This does make any increase in interest rates during the next few months less likely", he said.

Stats SA & Bloomberg
Stats SA & Bloomberg

Also pushing down on inflation was a slower rise in the price of ferry tickets which previous year were monitored over Valentine's Day when many people could have been taking breaks, the ONS said.

Senior economist at the Ulster University Economic Policy Centre, Esmond Birnie said the latest inflation figures suggest a move towards the Bank of England's CPI target of 2 per cent. Higher interest rates achieve that by providing greater scope for rates cuts, and hence monetary stimulus if needed. That should help to ease some of the inflation pressure which has hurt the spending power of many households.

Phil Gooding, ONS statistician, said: "A small fall in petrol prices alongside food prices rising more slowly than past year helped pull down inflation, as numerous early 2017 price increases due to the previous depreciation of the pound have started to work through the system".

Petrol prices fell on the month and food prices rose more slowly than in February 2017, he said. The economists expect the data to show acceleration of growth to an annual rate of 2.6% in the three months to the end of January.

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Previously, UK inflation rose from 0.3% in June 2016, the month of the Brexit referendum, to a high of 3.1% in November 2017.

"We are increasing the National Living Wage which is already helping the lowest earners see their pay rise by nearly 7 per cent above inflation".

As the latest Resolution Foundation report, The Living Standards Outlook, revealed, the last decade has seen the most anaemic rates of wage growth for 200 years.

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"This fallback in inflation therefore provides little reason for the Bank of England to hold back from gradually raising interest rates".

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

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