Inflation in the UK fell by more than expected in February, driven by a drop in clothing prices amid high levels of promotional activity. However, food inflation remained elevated and is expected to rise further as the industry faces a raft of new cost pressures.
The data from the Office for National Statistics (ONS) shows the overall Consumer Prices Index (CPI) rose by 2.8% in the year to February, down from 3.0% the previous month.
Economists polled by Reuters had expected inflation to dip to 2.9%. However, despite the bigger-than-expected fall, the figure is still above the Bank of England’s target of 2%.
The rate of price rises is also expected to increase in the months ahead, with council tax, energy and water bills all set to rise in April. In addition, a recent survey from the ONS found that almost half of businesses are considering price rises as they brace for next month’s tax rises and increase in the National Living Wage.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said the Bank of England was unlikely to cut rates at its next meeting because February’s fall was “not an enormous change” and inflation “is still significantly above target”.
She added: “Although policymakers won’t want to keep rates too high for too long given the stagnation in the economy, they are set to stay cautious with a rate cut looking more likely to come in June and another later in the year.”
In the food and non-alcoholic beverage sector, prices rose by 3.3% year-on-year in February, unchanged from the previous month. Increases and decreases in prices for food categories were said to have offset each other, leading to no change in the rate.
Balwinder Dhoot, Director of Industry Growth and Sustainability at the Food and Drink Federation (FDF), commented: “As high levels of food and drink inflation continue, the pressure on businesses shows no sign of easing. Manufacturers are grappling with rising energy and commodities prices, alongside the impact of looming government policies, such as rising Employer’s National Insurance Contributions and the upcoming EPR packaging tax. In short, doing business in the UK is becoming increasingly expensive.
“As food and drink manufacturers continue to work hard to minimise price rises for consumers, we hope to see the Chancellor make bold decisions in her Spring Statement this afternoon to bring business costs down, help curb this concerning inflationary trend and revive growth.”
NAM Implications:
- Forget official ‘fingers-crossed’ optimism…
- …and focus on the realities of what affects consumers:
- Food inflation remains elevated
- Expected to rise further because of a raft of new cost pressures i.e. council tax, energy and water bills all set to rise in April
- 50% of businesses likely to raise prices because of tax rises and increase in the National Living Wage
- In other words, no let-up on purse tightening…
