Data this morning has revealed a slowdown in the UK rate of inflation for the first time since September.
 
The Consumer Price Index grew 3.0 per cent month-on-month in February versus 3.5 per cent in January. The market had forecast a more modest decline to 3.1 per cent.

The figure falls in line with the Bank of England’s latest inflation report, which forecast that the rate, having spiked, would fall back beneath the 2.0 per cent target over the medium term.

January’s increase in VAT had helped account for the steepest rise in inflation in 14 months and stoked speculation that interest rates may need to be raised. However, weak wage growth and high unemployment have limited the ability of firms to raise prices.  
 
Duncan Higgins, senior analyst at Caxton FX, said, ‘This morning’s data will come as relief to the Bank of England, where certain policymakers were beginning to express their concern about the steep rise in inflation. It will be assumed now that inflation has peaked, and it may begin to creep lower as the spare capacity in the economy subdues price growth.
 
‘In undershooting expectations, the market has taken the pound lower. With inflation cooling, the pressure to raise interest rates has eased off and sterling has dipped back below €1.11. Market reaction has not been too volatile with investors being cautious ahead of the annual Budget Report due tomorrow at 12:30.’