Cost of living falls in February as transport and food prices decline

The rate of inflation across the UK fell to its lowest level since July last month, in yet another sign that the post-Brexit-vote hit to living standards caused by a slump in the pound is easing.

The Office for National Statistics on Tuesday said that consumer price inflation on a 12-month basis was 2.7 per cent in February, down from a rate of 3 per cent in January, which was unchanged from December. That’s the lowest level since last July, when inflation stood at 2.6 per cent.

The largest downward contributions came from transport and food prices which rose less than they did last year. Falling prices for accommodation services also had a downward effect, the ONS said.

Average petrol prices fell by 0.2 pence per litre between January and February which compares with a rise of 1.6 pence between the same two months a year ago. The price of an average overnight hotel stay also fell, having risen during the same period in 2017.

Food and non-alcoholic beverage prices rose by 0.1 per cent between January and February having jumped by 0.8 per cent last year. The ONS said that vegetable prices actually fell this year. Last year they were driven higher when adverse weather conditions in parts of southern Europe led to a shortage of certain greens and salad vegetables.

Inflation climbed steadily in the aftermath of the UK’s June 2016 vote to quit the EU as the pound fell sharply against a slew of other global currencies.

That translated into higher import costs, which in turn forced a rise in the price of goods, constraining consumers’ spending appetites and bruising broader economic growth.

But since then the pound has tentatively stabilised and many economists and forecasters have in recent months said that inflation has likely peaked.

“Looking ahead, it is likely that UK inflation will continue to recede,” said Ed Hutchings, a portfolio manager at Aviva Investors, adding that uncertainty surrounding Brexit negotiations had been “somewhat reduced”.

Tej Parikh, senior economist at the Institute of Directors, agreed that “the peak impact of sterling’s depreciation on inflation now appears to have largely washed through”.

“This is certainly a boon for consumers who have been wedged between high food prices on the one hand and subdued earnings on the other for an extended period,” he said.

He added that Tuesday’s figure also furthers the case for the Bank of England to hold fire on an interest rate rise at its meeting later this week.

The Bank of England’s Monetary Policy Committee (MPC) raised interest rates in November from 0.25 per cent to 0.5 per cent, the first increase in a decade, in order to stop inflation getting out of hand and to bring it back down to the Bank’s official 2 per cent target.

The Bank is largely expected to be preparing a next rate increase for May.