The ONS has announced that UK inflation (CPI) fell to 2.8% in the year to February, down from 3% last month—slightly better than expected and a rare piece of good news for Chancellor Rachel Reeves. The biggest contributor? Falling prices in women’s clothing.
But don’t celebrate just yet. Analysts predict inflation will rise again, potentially peaking at around 4% by September before easing back. April brings fresh financial pressures, with employer NIC hikes, minimum wage increases, and rising bills (council tax, water, and more). The Bank of England’s 2% target still feels a long way off.
Spring Statement Updates & Expert Insights
These latest data are some small token of good news for Chancellor Rachel Reeves, set to deliver her Spring Statement this afternoon. We’ll be covering all the key takeaways from the Spring Statement, right here on Wealth DFM. For everything that wealth managers need to know, visit our dedicated Spring Statement section for all the latest news and views.
Inflation Industry Reactions: What’s Next for Inflation, Interest Rates, and The Property Market?
Investment strategists and economists are already weighing in on the latest inflation data. What does it mean for interest rates, for markets—and for the Chancellor? Read on to see the expert takes.
Luke Bartholomew, Deputy Chief Economist, at Aberdeen, comments;
“Both the Bank of England and the Chancellor will be somewhat relieved by the drop in headline inflation. Though inflation is still running well ahead of target and is still likely to increase later this year. So this report does not fundamentally change the outlook for inflation, but it should keep the path clear for another interest rate cut in May.
In the meantime, slightly lower inflation should also mean less pressure on gilt yields, which remain a major concern for the Chancellor as she prepares for her Spring Statement later today. While the broad contours of that announcement are well understood, the market reaction will likely turn on how much the spending reductions are front-loaded versus back-loaded, with back-loaded cuts more likely to stretch credibility and risk a more adverse market move.”
Lindsay James, investment strategist at Quilter:
“With Rachel Reeves up at the despatch box later today to reassure not only investors, but the nation that the economy is doing just fine, today’s inflation figures are a reminder of what lurks ahead. Inflation came in at 2.8%, with core inflation remaining very sticky at 3.5%, both marginally better than expected. While this is only moderately above target, the news looks fairly bleak as we move through the year, leaving the government with plenty of work to do.
“Energy prices are due to climb as the price cap rises in the coming months. Coupled with this the uncertain economic policy coming from across the Atlantic and the outlook for inflation looks decidedly negative. Furthermore, UK wage growth continues to be surprisingly strong, while imminent hikes to national insurance contributions from employers is likely to lead to higher prices. We are also seeing consumers struggling, with spending being held back. Interestingly, February usually sees clothing prices rise as spring product ranges hit the shops, but these statistics show the first fall between January and February since 2021 when the pandemic hit sales patterns.
“There is a cocktail of risks right now for the UK when it comes to inflation, and this is only adding to the ‘stagflationary’ fears. Economic growth is miniscule and risks going backwards, but should inflation continue to refuse to get back near the 2% target, it is difficult to see what the Bank of England can do with interest rates. Not cutting or not doing it quick enough may be enough to tip the economy back into recession, but cutting too soon or to quickly and you risk adding fuel to the inflationary fire.
“The Chancellor is unlikely to announce much today that will help quell the fears around the UK economy. The UK is not immune from Donald Trump’s trade wars, and as such it is likely things will continue to look bleak for the UK economy until the government can reverse sentiment and see some of its policies having the desired effect.”
Commenting on the latest CPI data from the ONS, Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner said: “In a bit of welcome news prior to the Spring Statement, inflation in the UK as measured by the Consumer Price Index rose by 2.8% in the 12 months to February 2025, down from 3.0% in January. While still above the Bank of England target, it comes as relief, albeit temporary, for the beleaguered government. Core inflation, which excludes volatile components like food, alcohol and tobacco, came in lower. Services inflation remained resolutely at 5%, the same as January.
“Being an indicator of domestic pressures, the reading of Services inflation was disappointing, but overall, the inflation numbers were lower than expected. The central bank had recently put rates on hold on the back of economic and global trade uncertainty, but the Chairman reassured that interest rates were on a “declining path”, reiterating its commitment to “to make sure that inflation stays low and stable”.
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services said: “Today’s data confirms that the UK’s consumer price inflation dipped in February, following January’s spike due mainly to the first fall in clothing prices since the autumn of 2021. Though a welcome respite, this will likely do little to ease concerns that price pressures are contained and will not hold at prevailing levels for long. Another upward leg is highly likely soon.
“The Monetary Policy Committee will be most concerned about the notable increase in supermarket food prices, despite subdued input costs. Some parties infer that consumer-facing companies have increased prices in an attempt to pass on the costs from April’s scheduled increase in the minimum wage and National Insurance contributions.
“In its assessment of the rate-setting environment, the Bank of England faces a difficult conundrum. While there is the argument that cutting interest rates would give the economy a much needed helping hand, persistent price and wage pressures will surely force it to wait and see before making decisions – an undesirable holding pattern leaving households and businesses uncomfortably in the lurch.”
Jochen Stanzl, Chief Market Analyst at CMC Markets comments: “The decline in inflation is good news for all those investors who are hoping for a rate cut by the Bank of England in May. After the GDP data was so poor and the BoE confirmed that uncertainty due to US trade policy, the increase in volatility in the financial markets, and Germany’s financial package had grown, the probability of a rate cut in May has increased significantly with today’s inflation data. The recently reported weak GDP data has already underscored the urgency for further easing measures. With less inflation there is also less risk for lowering rates to support growth going forward. Hence it is no wonder we see a positive reaction in the FTSE 100 and a weaker Pound.”
Daniela Sabin Hathorn, Capital.com said ” The FTSE 100 is edging higher on Wednesday morning following a softer-than-expected inflation print for February, offering some relief to markets and policymakers alike. UK Consumer Price Index (CPI) rose by 2.8% year-on-year, down from 3.0% in January—which had marked the highest level in nearly a year. The reading came in below expectations of 2.9%, reinforcing a renewed disinflationary trend after several months of persistent price pressures.
Disinflation Continues, But Pressures Persist
“Despite the encouraging year-on-year figures, monthly data shows that inflationary pressures remain entrenched. Both core and headline CPI increased by 0.4% month-on-month, slightly below the 0.5% consensus but still indicative of lingering price momentum. This suggests that while disinflation is underway, its pace may remain limited going forward.
Market Reaction and Policy Implications
“So far, markets are choosing to focus on the positives. The FTSE 100 is recovering from last week’s decline, with investor sentiment buoyed by the improving inflation backdrop. However, caution still lingers as Chancellor Rachel Reeves prepares to deliver the UK Spring Statement later today.
“The latest CPI data provides a timely tailwind for Reeves, who is under mounting pressure to address rising borrowing costs and the ongoing cost-of-living challenges faced by UK households. Markets are widely expecting her to unveil spending restraint rather than new tax hikes, but the credibility of these measures will be closely scrutinized.
“Should the Spring Statement fall short of reassuring markets about the UK’s fiscal trajectory, gilt yields could rise further, reflecting renewed concerns about the sustainability of public finances.“
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