Inflation falls to lowest level since 2022

The Consumer Prices Index (CPI) rose by 3.4% last month – far less than was expected – according to figures out this morning from the Office for National Statistics.

February’s rise was down from 4.0% in January and means that inflation is at its lowest level since 2022.

The CPI figures measure how much the price of goods bought by UK households change over a 12-month period.

Last month’s figures were a result of a drop in food costs, with the price of household staples like bread and cereals remaining unchanged on 2003.

Inflation is now closer to the Bank of England’s 2% target ahead of its meeting on Thursday to review interest rates.

Interest rates have remained at 5.25% since last August following 14 successive rises, which has been a massive blow for homeowners.

Economists are predicting that the Bank of England will hold interest at 5.25% but this steep fall in inflation could signal that rates will start to drop later this year.

Grant Fitzner, chief economist at the ONS, said: “Inflation eased in February to its lowest rate for nearly two-and-a-half years.

“Food prices were the main driver of the fall, with prices almost unchanged this year compared with a large rise last year, while restaurant and café prices also slowed.

“These falls were only partially offset by price rises at the pump and a further increase in rental costs.”

What’s inflation?

Inflation is a measure of how prices of goods and services are changing in the UK.  It can have a big impact on people’s household finances.

Each month the ONS publishes the latest annual inflation rate, which measures the change in price of regularly purchases products – known as the basket of goods and services – compared with the same time the previous year.

Some goods contribute more to the overall inflation rate than others – if some products see a larger increase in prices, while others stay more stable, then inflation would be driven by the changing prices in that spending category.

So, how the headline inflation rate affects your household depends on which products you tend to spend your money on.

What it means for your household budget

Higher inflation means the cost of everyday essentials such as food, energy and fuel are rising.

The Bank of England bases its interest rate on inflation figures. It increases interest rates to help cool or reduce inflation and keeps them low when inflation is low.

The Bank of England paused interest rate rises when it met in August 2023 after 14 consecutive hikes, with the rate being held at 5.25%, the highest it has been since February 2008.

High interest rates is good news for savers but bad for homeowners who have seen their mortgages increase by more than £400.