A SLIGHTLY steeper-than-expected fall in UK inflation is viewed by economists as unlikely to prevent the Bank of England raising interest rates again in May.
Annual UK consumer prices index inflation fell from three per cent in January to 2.7% last month, figures published yesterday by the Office for National Statistics show. Economists had forecast a 2.8% annual CPI rate for February.
But the actual rate of 2.7%, although it undershot forecasts and was the lowest since July last year, remains well above the 2% target set for the Bank of England by the Treasury.
The average price of a litre of petrol rose by 0.2p last month, to 120.8p. This was a much smaller rise than the 1.6p increase in February 2017, and this put downward pressure on the annual inflation rate.
The price of overnight hotel accommodation fell in February, having risen at the same time last year.
The Bank of England raised UK base rates by a quarter-point from a record low of 0.25% in November.
Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said: “Though the [inflation] outturn was lower than the Bank of England had forecast, we do not expect it to discourage the Monetary Policy Committee from hiking interest rates in May...We expect this week’s meeting to prepare the ground for the MPC to hike rates again in May.”
Chris Williamson, chief business economist at IHS Markit, said: “Given other trends in the economy, the larger-than-expected drop in headline inflation will do little to deter policy-makers from raising interest rates.”
Sebastian Burnside, senior economist with Royal Bank of Scotland, said: “Inflation fell back to 2.7% in February as prices eroded people’s purchasing power a little less rapidly. The big question is what the Bank of England will make of all this.”
Mr Burnside flagged a view that a weaker-than-expected inflation rate for one month would not be enough to change the MPC’s view on rates, but believed some committee members might prefer to hold off if average earnings data were weak.
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