UK inflation eased by more than expected last month, official figures revealed today – delivering a boost to Chancellor Rachel Reeves ahead of her spring statement.
The rate of Consumer Prices Index (CPI) inflation fell to 2.8 per cent in February from 3 per cent in January, the Office for National Statistics (ONS) said.
Most analysts had been expecting CPI inflation to come in at 2.9 per cent for February.
The bigger-than-forecast inflation drop comes on the same day that Ms Reeves delivers her spring statement, where she is expected to announce spending cuts for some Government departments.
The ONS’s chief economist, Grant Fitzner, said: ‘Inflation eased in February. Clothing prices, particularly for women’s clothes, was the biggest driver for this month’s fall.
‘This was only partially offset by small increases, for example, from alcoholic drinks.’
Responding to the inflation figures, Treasury Chief Secretary Darren Jones said: ‘Our number one mission is kickstarting growth to raise living standards for working people, that is why we are protecting working people’s payslips from higher taxes.
‘In a changing world, we’re focused on delivering economic stability to secure people’s finances – freezing fuel duty, protecting the triple lock and increasing the national living wage by £1,400 a year for full-time workers, while going further and faster to drive growth through our plan for change. ‘
The rate of Consumer Prices Index inflation fell to 2.8%n February from 3% in January
And Emma Jones, managing director at Whenthebanksaysno.co.uk, told MailOnline: “Inflation dipping below 3 per cent could provide a boost to borrowers if it translates into lower interest – and mortgage – rates.
‘Unfortunately, the road ahead is unlikely to be a smooth one and there is every chance inflation could rise again as the effects of the Budget kick in. This is a small win for borrowers either way.”
It comes as Ms Reeves will acknowledge she needs to go ‘further and faster to kickstart growth’, amid dour predictions about her cost-cutting measures and as she scrambles for savings to help balance the nation’s books without hiking taxes.
The Chancellor will be forced to take action to stick to her rule of meeting day-to-day spending through tax receipts, rather than extra borrowing, in response to gloomy forecasts from the budget watchdog.
The Office for Budget Responsibility (OBR) is widely expected to slash its forecast for economic growth, following similar recent revisions by the Bank of England and the Organisation for Economic Co-operation and Development (OECD).
And the watchdog is said to have warned that cuts to welfare set out in recent weeks have fallen short of the £5billion savings ministers expected, according to media reports, leaving the Chancellor with a £1.6billion hole likely to be filled with further cuts.
The Government has also borrowed more than previously expected, with the cost of those loans rising – in part due to global turbulence.
In her spring statement, the Chancellor will tell MPs that a ‘more insecure world’ requires a greater focus on national security, with a promise to increase defence spending by £2.2 billion from April as part of the previously announced plan for the biggest boost in military funding since the Cold War.
Chancellor Rachel Reeves at Rheinmetall BAE Systems Land in Telford, Shropshire, on Monday
She will say: ‘This moment demands an active government stepping up to secure Britain’s future. A government on the side of working people.
‘To grasp the opportunities that we now have and help Britain reach its full potential, we need to go further and faster to kickstart growth, protect national security and make people better off through our plan for change.’
Ms Reeves will tell MPs she is ‘proud’ of her record in office – despite the sluggish economic growth figures which have heaped pressure on her.
In its October forecast, the OBR expected gross domestic product – a measure of the economy’s size – to grow by 2 per cent in 2025 and 1.8 per cent in 2026 but that is widely expected to be downgraded.
The Bank of England halved its growth forecast for the UK economy in 2025 to 0.75 per cent in February, and earlier this month the OECD cut its 2025 forecast from 1.7 per cent to 1.4 per cent.
Lower-than-expected growth will lead to smaller tax receipts than had previously been budgeted for.
The latest official borrowing figures, for February, were £4.2billion higher than had been forecast by the OBR.
Ms Reeves’ self-imposed rule to meet day-to-day spending at the end of the five-year forecast through receipts rather than borrowing was forecast to be met with £9.9billion of headroom to spare in the OBR’s October assessment.
A workman sweeps the pavement outside 11 Downing Street in London this morning
But the lack of growth and the increased cost of borrowing will eat into that headroom, forcing the Chancellor to take action to ensure she continues to meet the rule – which is designed to show that Labour can be trusted with the public finances.
Ahead of the statement, the Chancellor has:
- Said the UK has ‘not been immune’ from ‘increases globally in the cost of government borrowing’.
- Insisted that ‘economic stability is non-negotiable’ and she will ‘never play fast and loose with the public finances’.
- Promised that she would not use the spring statement to raise taxes.
- Confirmed plans to tell Whitehall departments to cut administrative budgets by 15 per cent, expected to save £2.2billion a year by 2029-30.
- Announced £2billion of funding for social and affordable homes in England.
- Promised to train tens of thousands of construction workers to help deliver the promised 1.5 million new homes in England before the next election.
Alongside the statement, the Government will release an impact assessment indicating how many people will be hit by previously announced plans to cut £5billion off the welfare bill.
Prime Minister Sir Keir Starmer during a visit to Halfords Autocentre Cambridge on Monday
Here the Chancellor is also likely to face a headache, with several media outlets reporting that the OBR will say the benefits reforms will save only £3.4billion, leaving Ms Reeves with an unexpected £1.6billion shortfall.
She and Work and Pensions Secretary Liz Kendall are now expected to make further cuts to the basic rate on universal credit from 2029 and by freezing incapacity benefits.
A group of public health experts writing in the British Medical Journal warned people will die as a result of the cuts to personal independence payments and the sickness elements of universal credit.
Professor Gerry McCartney, from the University of Glasgow, said: ‘There is now substantial evidence that cuts to social security since 2010 have fundamentally harmed the health of the UK population.
‘Implementing yet more cuts will therefore result in more premature deaths. It is vital that the UK Government understands this evidence and takes a different policy approach.’
Prime Minister Sir Keir Starmer has insisted the welfare system is ‘morally indefensible’ and needs reform to help those who can work into jobs.
Shadow chancellor Mel Stride said: ‘Our national security demands a strong economy. Yet since Rachel Reeves’ first budget, growth is down, borrowing is up and business confidence has been destroyed.’