UK inflation falls below expectations and adds to expectations for BoE rate cuts later this year

British inflation eased slightly more than forecasted in February, adding to expectations that the Bank of England would start cutting interest rates in coming months. 

Annualized consumer prices rose by 3.4% in February, the lowest level since September 2021, compared to 4.0% increase in January, and ticked below consensus for 3.5% increase.

Monthly inflation rose by 0.6% last month against expected 0.7% rise.

So called core inflation, which excludes volatile energy, food and tobacco prices, ease to 4.5%, in comparison to 5.1% increase in January and beating 4.6% consensus.

Inflation data release came just one day ahead of Bank of England monetary policy meeting, with positive signals that inflation pressure is easing more than anticipated, adding to signals that the central bank may deliver its first rate cut in August.

The data boosted optimism among the policymakers and the government that inflation remains in a steady downward trajectory from its peak at 11% in October 2022 and will return back to the central bank’s 2% target in coming months and allow for cutting the borrowing cost which continues to hurt Britain’s households and the economy.