UK inflation unexpectedly falls in February

(IFA Magazine)

 

UK inflation unexpectedly fell in February as the price of clothes and second-hand cars declined, according to figures released on Tuesday by the Office for National Statistics.

Consumer price inflation fell to 0.4% from 0.7% in January, coming in below expectations of 0.8%.

Clothing, second-hand cars, and games, toys and hobbies were the largest downward contributors. Clothing and footwear prices fell 5.6% in the year to February 2021 – the largest fall since November 2009.

Meanwhile, the core rate of inflation – which excludes more volatile energy and food prices – declined to 0.9% in February from 1.4% the month before, versus expectations of no change.

ONS deputy national statistician for Economic Statistics, Jonathan Athow, said: “A fall in clothing prices helped to ease inflation in February, traditionally a month where we would see these prices rise, but the impact of the pandemic has disrupted standard seasonal patterns. Elsewhere there were falls in the price of second-hand cars.

“However, prices at the pump rose this month, compared with a fall this time last year.”

Paul Dale, chief UK economist at Capital Economics, said the surprise fall in CPI inflation displays the disinflationary effect from Covid-19 lockdowns, will delay the rebound to 2.0% and perhaps prompt the markets to reconsider their view that interest rates will rise next year.

Dales said the latest inflation data means that although the Governor of the Bank of England will have to write another letter to the Chancellor explaining why inflation is more than 1.0% below the 2.0% target, he can say that the fading drag from lockdowns and a rebound in energy inflation will soon lift inflation much closer to 2.0% in April.

“That said, we doubt inflation will be persistently above 2.0% until 2023. So don’t expect rate hikes for a long time yet,” Dales added.

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