UK inflation slows to lowest level in almost 2.5 years

LONDON

Britain's annual inflation rate fell more than expected in February, official data showed on March 20, fueling speculation that the Bank of England will start cutting interest rates in the coming months.

Inflation reached 3.4 percent last month, the lowest level since September 2021, after hitting 4.0 percent in January, according to the Office for National Statistics.

The consensus had been for consumer prices to rise by 3.5 percent in February, according to the Bank of England and other economists.

The drop may give a boost to embattled Prime Minister Rishi Sunak and his Conservative party as they face the prospect of losing a general election later this year amid discontent over the country's cost-of-living crisis.

But with inflation remaining well above the BoE's two-percent target, the central bank is widely expected to keep its main interest rate on hold in an announcement due today.

For the BoE, the outlook is less clear according to economists, even if rate cuts could give a lift to Britain's recession-hit economy.

"The Bank of England has already said it's not going to cut interest rates in a hurry," Sarah Coles, head of personal finance at Hargreaves Lansdown, said following Wednesday's data.

"It's going to wait for lower inflation to bed in. It means there's a decent chance we won't see cuts until August."

The pound was little changed against the dollar and euro following the latest data, while London's FTSE 100 stocks index fell after markets opened.