Fastest inflation fall in nearly half a century suggests UK is on track to hit two per cent target by April

CPI inflation fell to 3.4 per cent in February, confirming the fastest 12-month fall in inflation since 1978 and bringing inflation to its lowest level since September 2021, the Resolution Foundation said today (Wednesday).

This latest fall takes UK inflation within touching distance of US CPI inflation (3.2 per cent), although remains above the euro area (2.6 per cent), having experienced far higher inflation in recent months.

In encouraging news for the Bank of England, a key driver of this fall was more domestically-generated services inflation, which fell to 6.1 per cent – its lowest level in more than a year.

The other key driver of the fall in inflation between January and February was a sharp drop in food price inflation, which fell to 5.0 per cent in February, the lowest inflation rate since January 2022. This is welcome news for lower-income households struggling with the cost of living crisis who spend a larger proportion of their income on food.

James Smith, Research Director at the Resolution Foundation, said:

“The fastest fall in inflation for almost half a century will be welcome news for households – with food inflation falling to its lowest rate in two years – and the Bank of England, as inflation looks on track to hit its 2 per cent target in April.”

“Services inflation also continues to fall which, coupled with falling nominal wage growth, should give monetary policy makers more confidence that wage pressures on inflation are starting to ease.”