UK Inflation Slows Less Than Forecast

UK Inflation Slows Less Than Forecast




Inflation in the United Kingdom slowed for a fifth consecutive month in February to reach the lowest in fifteen months with costs of electricity, gas, transport and recreation putting the largest downward pressure on price levels. However, the fall in the inflation rate was weaker than the forecast.
The latest figures from the Office for National Statistics revealed Tuesday that the annual consumer price inflation eased to 3.4 percent in February from 3.6 percent in January. This was the lowest rate since November 2010.
Nevertheless, the inflation figure remained slightly above the 3.3 percent forecast by economists. It was also clearly above the central bank's 2 percent target.
"Consumer price inflation fell slightly less than hoped for in February, modestly fuelling concern that inflation will prove stickier than hoped for over the coming months particularly given current high oil prices," said Howard Archer, Chief UK and European Economist at IHS Global Insight.
The most significant downward contributions to the index came from prices of electricity, gas, clothing, footwear, air and road transport fares and mobile phone charges. At the same time, upward pressures came from alcohol and vegetables, the statistical office said.
The downward trend in the headline rate is likely to pause over the next couple of months, Vicky Redwood, chief UK economist at Capital Economics said. "Indeed, inflation could even rise in March on the back of the continued rise in petrol prices. And a possible rise in food prices in response to the droughts adds to the near-term upside risks to inflation," the economist added.
Month-on-month, consumer prices rose 0.6 percent, reversing January's 0.5 percent fall. Economists had forecast 0.4 percent increase.
Core consumer price index, that excludes energy, food, alcoholic beverages and tobacco, rose 2.4 percent year-on-year in February, decelerating from 2.6 percent rise in January. Economists expected a slowdown of 2.3 percent. Month-on-month, the core CPI rose 0.8 percent.
Annual retail price inflation came in at 3.7 percent during the month, below 3.9 percent in January. This was forecast to fall to 3.5 percent. The annual rate was lower last in December 2009 though the 3.7 per cent was equalled in January 2010 and February 2010. Excluding mortgage interest payments, retail price inflation eased to 3.8 percent from 4 percent.
In its latest inflation report released last month, Bank of England (BoE) said inflation might undershoot the 2 percent target in two years. Inflation is now estimated to slow to 1.8 percent in two years, but not as fast as initially thought. The previous forecast was for a slowdown to 1.3 percent.


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