The UK's Office for National Statistics (ONS) has reported a slight easing in the Consumer Price Index (CPI) inflation rate. This annual CPI inflation did show some signs of easing in February, coming in at 2.8%, down from 3% in January. Weak service price growth amid rising inflation expectations would be a concern for the Bank of England (BOE). Nonetheless, even with the retreat, it continues to run ahead of general inflation measures.
The core CPI rate, which excludes food and energy prices, has been one of the Federal Reserve’s favorite measures of inflation. It’s since moderated to 3.5%, a decrease from 3.7%. This so-called core rate is expected to be under especially intense focus later in the week. Meanwhile, the headline inflation rate, although lower than at the start of the year, still stands above December's 2.5% rate, highlighting ongoing inflationary pressures.
That drop in inflation to 1.7% last September of 2024 feels like a long time ago. Service prices have solid growth at 5% annual growth, which complicates the picture when looking at it relative to the CPI goods index. This index slowed in February to 0.8%, a decrease from 1% at the start of the year.
The monthly pace of inflation was noted at 0.4% month-over-month, just shy of the anticipated 0.5%. So needless to say, UK price growth continues to be a touchy topic. This persistent problem might push back any Bank of England interest rate cuts further into the future.
The market has only slightly responded to the new data. This means a lot of investors and analysts are probably waiting on the sidelines until they see further progress. All eyes are now on this year’s Spring Statement. It ideally would bring new clarity to the economic outlook and likely policy changes.