Good afternoon, and welcome to our live blog covering Wednesday’s February Consumer Prices Index (CPI) release.
Last month’s release revealed a surprise jump in inflation to 3% in the year to January. Analysts had forecast the headline figure to read 2.8% ahead of the release.
Follow us today and tomorrow as we bring you the latest forecasts, analysis and breaking news surrounding February inflation data.
When is inflation data released?
Inflation data for February will be released at 7am tomorrow, Wednesday 26 March.
See our article on upcoming CPI release dates for a full list of the upcoming releases.
What do experts expect from the inflation reading?
Rob Wood, chief UK economist at Pantheon Macroeconomics, expects the headline CPI inflation rate to hold at 3.0%.
This is slightly higher than the 2.8% that the Bank of England’s Monetary Policy Committee (MPC) forecasts for the end of the first quarter 2025.
According to Wood, the headline figure is likely to be lifted by stronger food and core goods inflation.
“February should be the ‘calm before the storm’ of annual price resets, as government-set price hikes and tax rises drive up headline CPI inflation to 3.5% in April,” writes Wood.
Longer-term UK inflation outlook
The MPC expects inflation to rise to 3.7% during the first half of this year, driven by increasing energy prices and some regulated prices such as water bills.
Increases in energy prices and water bills could see UK inflation increase from April
Over the long term, it expects inflation to fall back to around its 2% target. However, the MPC notes that there is a lot of uncertainty involved here; the unpredictable tariff regime, or a resumption of the Middle East conflict, could provide upside risk to this outlook.
Pantheon Macroeconomics expects inflation to peak in September at 3.7%, with a dip to 2.8% in March preceding an increase to 3.5% in April.
“Utility price hikes, annual price resets, and in particular water bill and vehicle excise duty increases drive that April inflation jump,” writes Robert Wood, chief UK economist at Pantheon Macroeconomics.
What do households expect to happen to UK inflation in the long term?
Individual consumers have higher expectations of longer term inflation than the MPC or Pantheon Macroeconomics, though.
Last week’s Citi/YouGov survey showed households’ inflation expectations for the coming year hit their highest level for more than a year during February, increasing to 3.9% from 3.5% in January.
“Inflation expectations are on the rise,” writes Sanjay Raja, senior economist at Deutsche Bank. “[Last week’s] Citi/YouGov index highlighted a further shift higher in both near-term and long-term inflation expectations,w ith both measures rising to 3.9%.
“On both sources, inflation expectations now sit well above their long-run averages.”
Deutsche Bank: inflation could rise in February
Unlike Pantheon Macroeconomics, which expects inflation to remain the same month-by-month in the next reading, Deutsche Bank thinks that inflation could edge upwards this month.
“After an upside surprise to CPI to start the year, we expect headline CPI to inch higher in February,” says Sanjay Raja, senior economist at Deutsche Bank. “We see CPI reaching 3.14% year-over-year.”
Raja forecasts services inflation remaining broadly unchanged at 4.9%, and RPI to fall slightly to 3.52%.
What is measured in the inflation basket?
When calculating inflation, the ONS looks at how the price of a basket of goods that is, theoretically, representative of what the average consumer buys and uses in day-to-day life has changed.
The basket is subject to periodic reviews, the latest of which took place last week.
The reshuffle saw VR headsets added to the basket, as well as exercise mats and pre-cooked pulled pork. Fresh turkey and newspaper adverts are among the items removed from the basket.
For the full details, read our explainer: ONS reshuffles inflation basket.
The question is – if you were representing the average consumer, what would the most-bought item in the basket be? For me, it’s biscuits, but let us know your response on the poll below.
IEA: inflation shouldn’t be Bank of England’s focus
The Bank of England held interest rates at 4.5% last week, with January’s spike in inflation to 3% influencing its decision.
The Bank has a mandate to target a 2% rate of inflation. This is viewed, in general, as a healthy level of inflation for an economy to run at, and most central banks have a similar mandate.
Yesterday, though, the think tank Institute of Economic Affairs (IEA) published a research paper entitled ‘Rethinking monetary policy’ in which it argued that nominal GDP growth, not inflation, should be the core metric that the Bank targets.
The paper argues that inflation targeting as a guide of central bank policy has been undermined by past failures to anticipate inflationary shocks.
“Too often, the BoE has underestimated the influence of fiscal policy and its own balance sheet expansions on inflation trends, contributing to monetary policy decisions that have added to the erosion of real incomes and exacerbated the cost-of-living crisis,” economist Damian Pudner wrote for the IEA.
Nominal GDP (NGDP) targeting, by contrast, would see central banks targeting either a certain level of GDP growth, or a particular change in GDP growth rates. In the case of a supply shock – where output and inflation move against each other – NGDP would let policymakers “allow the price level to adjust to changes in output without immediately tightening policy.”
This is a relatively controversial idea, but it has some pedigree: Sajid Javid recommended a similar shift in Bank policy in 2020, soon after the end of his tenure as chancellor of the exchequer.
That's everything from us for this evening. Join us tomorrow morning, when we'll bring you the live inflation reading when it lands at 7am, as well as analysis and reaction throughout the day.
Coming up: ONS’ UK inflation announcement
Good morning, and welcome back to our live blog covering the latest UK inflation read.
There’s just under an hour to go until the announcement. As a reminder, the consensus view – held by economists polled by Bloomberg as well as consultancy Pantheon Macroeconomics – is that the Consumer Prices Index (CPI) will have risen 3% year-over-year in February, the same rate of inflation as in the year to January.
We’ll bring you live coverage of the release as it happens – and keep following the blog today for reaction and analysis.
BREAKING: CPI ROSE 2.8% IN YEAR TO FEBRUARY
CPI inflation slightly below economists’ forecasts
The general consensus among economists had been for another 3% year-over-year rise in CPI inflation in February, so the slight drop from the previous month is a pleasant surprise.
Month-over-month, CPI rose by 0.4% in February 2025, compared to 0.6% in the same period last year.
Clothing was one of the biggest downward influences on prices, with housing and household services having a large downward impact on CPIH (more on that to follow).
CPIH rose 3.7% in year to February
The Consumer Prices Index including owner occupiers' housing costs (CPIH), which is perhaps the fullest picture available of inflation in the UK economy, rose 3.7% in the year to February – down from 3.9% in the year to January.
As it includes aspects of the cost of owning a home, the CPIH has some similarities to the Retail Prices Index (RPI). CPIH isn’t internationally comparable, so isn’t generally used as the headline inflation figure. However, the fall will be welcome news to homeowners worried about spiralling costs.
For more insight on the differences between the measures of inflation data, see our explainer on CPI vs RPI and other inflation metrics.
Core CPI and CPIH figures
Some of the prices tracked by the CPI and CPIH are subject to large short-term fluctuations. As such, the ONS also publishes “core” versions of these figures which strip out energy, food, alcohol and tobacco – the most volatile goods in the basket.
Core CPI rose 3.5% in the year to February, down from 3.7% in the year to January. Core CPIH rose 4.4%, down from 4.6% the previous month.
A temporary reprieve for consumers?
The fall in inflation in the year to February is welcome news and will have been felt by consumers. However, Scott Gardner, investment strategist at wealth manager Nutmeg, warns that the latest data represents just “a momentary reprieve for UK consumers.
“Some might see this as the calm before the storm after several forecasts have suggested that inflation could move closer to 4% over the course of 2025,” Gardner adds.
He highlights an upward trend in manufacturing PMI prices, as well as flat services inflation. “Likewise, weekly food shops were impacted by a further increase in checkout prices; meanwhile motorists saw a year-on year fall in the cost of petrol.”
He also warns of a risk of further inflation once the upcoming changes to National Insurance for businesses take effect.
Clothing price drops fuel drop in CPIH inflation
The figure that stands out most starkly in the data is the year-over-year fall in clothing and footwear prices.
These increased 1.8% in the year to January, but fell 0.6% in the year to February.
Other categories – such as furniture and household goods – recorded a slowdown in price increases (in this case, from 0.5% in the year to January compared to 0.2% in the year to February), which will have also contributed towards the slowdown in inflation.
| Header Cell - Column 0 | CPIH 12-month rate (%) | |
|---|---|---|
| Row 0 - Cell 0 | Jan 2025 | Feb 2025 |
CPIH All items | 3.9 | 3.7 |
Clothing and footwear | 1.8 | -0.6 |
Furniture and household goods | 0.5 | 0.2 |
All goods | 1.0 | 0.8 |
All services | 5.8 | 5.7 |
Source: Consumer price inflation from the Office for National Statistics
Services inflation remains sticky
The dampener, as far as the welcome fall in inflation is concerned, is CPI services inflation, which remained unchanged from the previous month at 5.0%.
This could worsen from April, as changes to National Insurance for businesses kick in.
“Businesses up and down the country have already warned of plans to pass on rising employment costs to their customers to offset the hit from Chancellor Rachel Reeves’ increases in employment taxes along with the minimum wage – a trend likely to prove inflationary,” says Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners.
“The upcoming rise in employer NI contributions could put a spanner in the works, given how much staff costs weigh on UK services businesses,” says Dan Lane, lead analyst at Robinhood. “While it’s currently being propped up by wage growth, the BoE really needs to see services CPI recede heavily if it’s going to feel more confident reducing rates in the back half of the year.”
Deutsche Bank: longer term picture remains unchanged
Sanjary Raja, chief UK economist at Deutsche Bank Research, thinks that while the latest inflation read will ease the pressure going into Rachel Reeves’ Spring Statement later today, the longer term outlook is still a cause for concern.
“Make no mistake, inflation remains on a one-way journey: up,” says Raja. “We see headline CPI rising to just under 4% year-over-year later this year.
“The good news is that today’s data should provide the BoE a path to continue with its gradual dial down of restrictive policy,” he added. “We continue to think a May rate cut is more likely than not. And we expect Bank Rate to fall to 3.25% next year as headline pressures recede and wage settlements fall back to a more target-consistent level of 3%.”
What does the dip in inflation mean for your savings?
Inflation is a killer for savers, eating into and eroding the value of interest over time.
It’s “essential” to ensure that savings at least keep pace with, and ideally beat, inflation, says Paul Went, managing director of savings at Shawbrook Bank.
“Inflation slowing gives savers more good news following the Bank of England’s decision to hold interest rates at its last meeting,” says Went. “However, it does still pose some challenges for savers. Especially those who haven’t switched accounts recently or reviewed their interest rate.
“There are nearly 800,000 fixed accounts due to mature in April and common misconceptions could be stopping savers from boosting their nest eggs. Indeed, many savers could unknowingly be missing out on higher returns due to common misconceptions about where their money is safest.”
See our explainer on inflation-beating savings accounts for more information.
Recap: UK inflation slows in year to February
Here’s a recap on the headline inflation figures that were announced this morning:
- CPI inflation reached 2.8%, down from 3.0% in the year to January;
- CPIH inflation reached 3.7%, down from 3.9%;
- Core CPI inflation reached 3.5%, down from 3.7%;
- Core CPIH inflation reached 4.4%, down from 4.6%.
What does the inflation dip mean for interest rates?
Inflation puts up the price of things we buy, but it also has less direct impacts on our finances.
It is the principal metric that the Bank of England (BoE) looks at when determining interest rates. It typically increases interest rates if inflation is running high (above its 2% target, though the present situation is somewhat unusual in that the Bank is gradually cutting rates despite inflation running above this level).
“The BoE has its hands full as it tries to control inflation while reducing rates to minimise economic harm. It also has a lot of plates spinning when it comes to monitoring the various influences on prices,” says Rob Morgan, chief investment analyst at Charles Stanley.
While the impact of the upcoming changes as a result of the Budget, particularly business NICs, is hard to predict, weakness in the economy alongside this latest inflation dip could persuade the Bank to continue cutting at its next meeting.
“A further 0.25% cut at the BoE’s meeting in May is a possibility if inflation trends a bit lower and jobs data comes in softer by then, but that is far from a given,” says Morgan.
What’s happening with house price inflation?
The ONS has also released information on house price inflation today.
Average monthly rental prices increased by 8.1% in the 12 months to February, down from 8.7% in January. Average prices increased by 4.9% in the 12 months to January, up from 4.6% in the 12 months to December 2024.
“Rents are still rising faster than earnings and we expect rental inflation to slow further over 2025,” says Richard Donnell, executive director at Zoopla.
“House prices are rising on the back of increased activity over 2024 with 10 per cent more sales and lower mortgage rates boosting demand, along with a rush to beat the stamp duty holiday,” he adds. “Our latest Zoopla data shows a significant increase in the supply of homes coming onto the market, rising at a faster pace than sales. Together with weaker first-time buyer demand and higher buying costs for most purchases, after April we will see price growth slowing over 2025.”
Thanks for following the live blog today. We took a bit of a break to cover Rachel Reeves’ Spring Statement - head over there for all of the latest if you haven't already.
We'll be back covering inflation live at the next release, scheduled for 16 April. But in the meantime, that's all from us on CPI.