UK Inflation Cools To 2.8%

(RTTNews) - UK inflation softened unexpectedly in February on lower clothing costs, data from the Office for National Statistics showed on Wednesday.

The consumer price index logged an annual increase of 2.8 percent in February, following January's 3.0 percent rise. Prices were forecast to climb again by 3.0 percent.

Core inflation that excludes prices of energy, food, alcohol and tobacco, was 3.5 percent, down from 3.7 percent in January. The rate was below economists' forecast of 3.6 percent.

The largest downward contribution to annual inflation came from clothing and housing and household services.

On a monthly basis, consumer prices moved up 0.4 percent, in contrast to the 0.1 percent fall in January. Economists had forecast prices to increase 0.5 percent.

ONS data came ahead of the Chancellor Rachel Reeves' Spring Statement, due later today. Markets expect Chancellor Rachel Reeves to tighten the fiscal policy by GBP 10 billion. Reeves is likely to reduce spending plans instead of introducing new tax hikes.

Services cost increased at a steady pace of 5.0 percent in February, ONS reported. At the same time, prices of goods rose at a slower pace of 0.8 percent after a 1.0 percent rise.

ING economist James Smith said there are tentative signs that the forthcoming rise in employer National Insurance is having an impact on service sector inflation, which came in a tad higher than expected in February.

The economist observed that it should still fall back in the second quarter, though, keeping the Bank of England on track for three further rate cuts this year.

Earlier this month, the BoE maintained its benchmark rate at 4.5 percent amid intensifying uncertainty over global trade policy. The bank projected inflation to peak at about 3.75 percent in the third quarter.

Separate data from the ONS today showed that house prices grew 4.9 percent year-on-year in January, following a revised 4.6 percent rise in December.