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United Kingdom Inflation February 2024

United Kingdom: Inflation declines to lowest level since September 2021 in February

Inflation dropped to 3.4% in February from January’s 4.0%. February’s reading represented the weakest inflation rate since September 2021 and undershot market expectations. Looking at the details of the release, price growth for recreation and culture and food and non-alcoholic beverages softened, while transport prices fell at a milder rate.

Accordingly, the trend pointed down, with annual average inflation coming in at 6.2% in February (January: 6.8%). Meanwhile, core inflation fell to 4.5% in February, from the previous month’s 5.0%.

Finally, consumer prices rose 0.59% from the previous month in February, contrasting the 0.58% fall seen in January. February’s figure marked the highest reading since May 2023.

Our Consensus is for headline inflation to fall close to the Bank of England’s target by Q2 on a 12% reduction in the energy price cap from April, and to remain close to target for the remainder of the year.

On monetary policy implications, Nomura analysts said:

“While February headline inflation was a touch lower than consensus had expected today, the key metric of services inflation was higher – at 6.1%. While that’s still far too strong for the Bank of England’s comfort, it did print in line with what the MPC was expecting in its February forecast round. […] Today’s stronger services print in particular provides some comfort for our view that the Bank will only cut rates from August this year.”

In contrast, Berenberg’s Kallum Pickering is more dovish:

“Although headline yoy inflation remains too far above the 2% target to lower the bank rate just yet, it is fast heading towards target and another big drop is due in April when the consumer energy price cap declines again. There is a chance after today’s data, therefore, that policymakers give a nod to current market expectations for a first cut in June.”

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