UK inflation eased more than expected from 3.0% in January to 2.8% in February

The Office of National Statistics (ONS) recently revealed in the latest inflation report that the UK’s inflation rate dropped to 2.8% in February, compared to 3.0% in January. The February inflation slowed down more than expected by economists, including from a Reuters poll where economists predicted the inflation rate to drop to 2.9% last month. The slowdown came from a significant drop in clothing and shoes prices for the first time in over three years. 

The CPI rose 0.4% in February of this year compared to 0.6% in February last year. The CPIH (excluding tobacco, alcohol, food, and energy) rose 4.4% in February compared to 4.6% in January. The core CPI (excluding tobacco, alcohol, food, and energy) also rose by 3.5%, down from 3.7% in January.

The Bank of England had predicted earlier in February that the inflation rate for the month could hover around 2.8%. The February rate is still higher than the BoE’s inflation target of 2.0%, maintaining the British central bank’s wariness. ONS chief economist Grant Fitzner said that the inflation drop was due to small increases, including from alcoholic drinks. Fitzner added that the drop in women’s loathing was the biggest driver behind the February inflation’s fall. 

In February, clothing and footwear also experienced ‘an unreasonable high sales number’. Fitzner stated that the usual end of discounting is in February as January sales round-up and spring trends come into the market. The ONS discovered that this trend did not happen in February this year, leading to unseasonably high clothing and shoe sales. 

Bank of England remains cautious on rate cuts

The inflation decrease in February has been considered a ‘false dawn’ as prices are expected to surge in April. ICAEW’s Economics Director Suren Thiru stated recently that UK consumers could expect a surge in national insurance and a spike in energy bills. Thiru added that the spikes would lead to a surge in inflation in April to nearly 4%. 

The UK energy regulator Ofgem recently explained that the domestic price cap on energy would increase by 6.4% due to surging wholesale energy prices. The new price cap will stand at £1,849 from £1,738, rising by 111 pounds for a year’s average consumer use of gas and electricity. The spike is higher than the forecasted 5% and the third quarterly increase experienced since Q4 2024. 

The BoE also forecasted the inflation rate to increase to around 3.7% before the end of the first half of this year, citing rising energy prices as part of the reason. The bank’s governor, Andrew Bailey, still believed that the UK’s inflation was on a gradual downward trend during the Monetary Policy Committee meeting last week. 

The central bank notably approached interest rates cautiously, maintaining borrowing rates at 4.5% through an 8:1 vote. JPMorgan Chase analyst Zara Nokes still mentioned that the BoE was ‘between a rock and a hard place’ as inflation remained sticky. A recent BoE survey further highlighted negative sentiment among businesses. A high number of businesses opted against hiring while others prepared for employee layoff due to the strained economic growth experienced in the UK. 

BoE’s decision was also based on the increasing economic uncertainty globally due to U.S. President Donald Trump’s economic policies. The Federal Reserve also notably maintained its rates in the FOMC meeting last week, with Fed chair Jeremy Powell insisting that the current policies were well-placed to counter the economic uncertainties faced by U.S. consumers and businesses.

Chancellor Rachel Reeves to announce budget changes

UK Spring Statement today — Chancellor @RachelReevesMP is expected to blame global headwinds (cough Donald Trump) for welfare cuts and a rise in defence spending. But could there be more pain this autumn?

Live from Westminster via @BloombergTV: https://t.co/vTUQDo5mCa

— Lizzy Burden (@lizzzburden) March 26, 2025

The ONS inflation report came a day before the UK Chief of Treasury Chancellor Rachel Reeves is supposed to release her Spring Statement, revealing the expected budget changes for this spring. Reeves was also expected to comment on the current state of the UK public finances based on the budget rules she placed in October. 

In her statement today, the UK Treasury Chief pointed out that the Office for Budget Responsibility (OBR) had dropped the region’s economic growth forecast by half from 2% to 1%. Reeves still insisted that the OBR raise the long-term forecast for economic growth in 2026. 

The chancellor also delivered the much-awaited welfare cuts, announcing a 4.5 billion pound cut. Health-related benefits, which had been cut by 50% as of April 2026, will be frozen until 2030. Reeves will still provide a 1 billion pound investment into Labor to improve employment opportunities in the UK. 

The government is also expected to raise defense funding by 2.2 billion pounds, with Reeves insisting on boosting economic and national security. The amount was lower than the previously forecasted $2.9 billion pounds. Reeves revealed that a minimum of 10% of the funding would go toward novel technologies, including AI and drones.

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