Respite for consumers as inflation expected to ease back to 2.8%

Ivan Schwartz
March 21, 2018

The U.K.'s annual inflation dropped to 2.7 percent in February, down from 3 percent in January, the Office for National Statistics reported today.

Sarah Beeny, founder of estate agent, said: "January is often a tough month in the property calendar, so it's no surprise to see a weak start to the year in terms of house price growth".

The squeeze on British households may be easing after official figures showed that inflation fell to a seven-month low in February. Economists had been expecting a 2.8% rise.

The ONS' preferred measure of inflation, the Consumer Prices Index including owner occupiers' housing costs (CPIH) stood at 2.5 per cent in February 2018, down from 2.7 per cent in the year to January. Numerous price rises in early 2017, due to the previous devaluation of the pounds, began to solve the problems in the system.

Petrol prices fell on the month and food prices rose more slowly than in February 2017, he said. It expects wages to grow more quickly than inflation.

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However, the lower than expected inflation rate hasn't changed the outlook for interest rates much. Economists had forecast inflation to slow to 4.1 percent.

The annual house price growth rate slowed from 5% in December.

In Scotland, the average price increased by 7.3% over the year to reach £149,000, while the average price in Northern Ireland was £130,000, an increase of 4.3% over the year.

"This fallback in inflation therefore provides little reason for the Bank of England to hold back from gradually raising interest rates", said Andrew Sentance, a former BoE rate-setter who is now an economic adviser with accountancy firm PwC.

"We think that the MPC will refrain from ratcheting up its guidance and won't clearly signal an imminent rate rise in the minutes of Thursday's meeting, prompting markets to reassess their view that the chances of a May rate hike are as high as 80%".

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