The news comes as the United Kingdom’s inflation rate fell to 2.8% in February. That’s according to new Census 2021 data released by the ONS on Wednesday. This figure was a significant miss from the projections of economists surveyed by Reuters. This was against a backdrop, as they had predicted, of the twelve month change in the consumer price index being +2.9%. The drop in inflation today is due in large part to a huge, negative contribution from the apparel category.
In February, core inflation made only a very slight retreat. It marked at 3.5%, stripping out these volatile components such as energy, food, alcohol & tobacco. This represents a decrease from January’s national core inflation rate of 3.7%. Even the Bank of England (BOE) sounded alarm bells earlier this month. Looking ahead they project a one-time spike in inflation to 3.7% in the third quarter of this year, due mainly to rising energy prices.
"Other geopolitical uncertainties have also increased and indicators of financial market volatility have risen globally," noted the central bank.
The U.K.’s inflation path has been quite erratic. The story is exactly the same in January, as the rate shot back up to 3%, after a dismally low drop to 2.5% in December. The BOE’s forecast has inflation getting down to about 3.5% by September before eventually falling back to 2% in 2026. With energy prices about to rise even more, the means to meeting these ambitious targets will face even greater obstacles.
The Office for Budget Responsibility (OBR) is about to downgrade its growth forecasts for the U.K. economy. They’ve lopped 1.25 percentage points off their 2025 growth forecast, reducing it to just 0.75%. This fix underscores the combined economic pressures our nation is still facing. It highlights the challenges created by increasing unpredictability in global trade policy and the impacts of geopolitical strife.
"If that were to prompt a further rise in market rate expectations, today may not be the only time this year the Chancellor has to tighten fiscal policy to compensate for higher borrowing costs," commented Paul Dales, chief U.K. economist at Capital Economics.
In response to these economic conditions, government officials are emphasizing strategies to foster economic stability and improve living standards for citizens.
"Kickstarting growth to raise living standards for working people" and "delivering economic stability to secure people's finances," emphasized Chief Secretary to the Treasury Darren Jones.
Now the U.K. is grappling with a major economic crisis. Future inflation trends will be closely watched by policymakers and economists, weighing the implications for fiscal policy and support for future economic growth.