UK Inflation Rate Eases from 4.0% to 3.4% in February

UK Consumer Price Inflation Report for February 2024

On Wednesday, UK inflation was in focus before the Bank of England interest rate decision (Thurs).

The UK annual inflation rate eased from 4.0% to 3.4% in February, with core inflation down from 5.1% to 4.5%. Economists forecast annual and core inflation rates of 3.5% and 4.6%, respectively.

However, consumer prices increased by 0.6% month-on-month in February after falling by 0.3% in January. Economists predicted a 0.7% increase in consumer prices month-on-month.

According to the Office for National Statistics,

The Consumer Prices Index, including owner-occupier housing costs (CPIH), increased by 3.8% in the 12 months to February. (Jan: +4.2%).

• Housing and household services and motor fuels made the largest contributions to inflation.
• Prices for housing and household services were up 2.9% in the 12 months to February (Jan: +2.5%).
• Food and restaurants and hotels made the most marked downward contribution.
• Prices for food and non-alcoholic beverages increased by 5.0% in the 12 months to February (Jan: +7.0%).
• Alcohol and tobacco prices rose by 11.8% in the 12 months to February (Jan: +12.2%).
• Prices for restaurants and hotels increased by 6.0% in the 12 months to February (Jan: +7.1%).

The Consumer Prices Index, including owner-occupier housing costs (CPIH), rose by 0.6% in February 2024 compared with February 2023. (Jan: 1.0%).

Bank of England Monetary Policy Implications

The UK inflation figures followed softer UK wage growth figures. Economists expect consumer price inflation to fall at a more marked pace in the coming months. However, the Bank of England may need wage growth to slow at a more marked rate to deliver an interest rate cut.

Nonetheless, the February inflation numbers could impact votes for an interest rate hike.

GBP/USD Reaction to the UK Inflation Report

Before the UK inflation report, the GBP/USD fell to a low of $1.27104 before climbing to a high of $1.27248.

However, in response to the inflation report, the GBP/USD fell to a low of $1.26980 before rising to a high of $1.27297.

On Wednesday, the GBP/USD was up 0.03% to $1.27253.

Up Next

The FOMC interest rate decision, projections, and press conference will warrant investor interest on Wednesday. Economists expect the Fed to leave interest rates at 5.50%. Uncertainty about the Fed rate path will give the FOMC projections and press conference more weightage.