Pressure Piles On Bank To Cut Rates After Inflation Falls

UK inflation has fallen back to 3.4 per cent, the lowest level in more than two and a half years, boosting hopes that the Bank of England could look to cut interest rates in the summer.

- JOE MIDDLETON

The larger-than-forecast decline is a significant boon for Rishi Sunak, who made reducing inflation one of his key economic pledges. Getting inflation down to 2 per cent is also a key target for the Bank.

The figures released by the Office for National Statistics (ONS) yesterday showed that inflation was 3.4 per cent in February, which is slightly lower than the 3.5 per cent predicted by economists. This is the lowest level inflation has been at since September 2021. Despite inflation falling it does not mean that prices are falling, only that they are rising at a slower pace.

In other developments:

Renters were hammered by increased costs that have accelerated at the fastest rate on record

Economists predicted that the BoE will start cutting interest rates in the summer and they could reach as low as 3 per cent by next year

Jeremy Hunt piled the pressure on the BoE to cut rates by saying the positive inflation figures “open the door” for interest rate reductions to help under-pressure homeowners

The inflation news prompted NatWest to cut rates on a number of mortgage deals prior to the BoE’s decision on interest rates

The latest figures are moving gradually closer to the Bank of England’s 2 per cent inflation target and come ahead of the next interest rate decision today. Financial markets overwhelmingly think that policymakers will keep interest rates on hold at 5.25 per cent, but the fall in inflation yesterday increases the chances of them being cut in the summer, in what would be a welcome boost to homeowners with borrowings.