Inflation in the UK dropped more than forecast in February, according to figures from the Office for National Statistics (ONS).
The annual inflation rate fell to 3.4 per cent in February, down from 4 per cent a month earlier, its lowest reading since September 2021.
The February number remains well above the Bank of England's (BoE) target of 2 per cent, and its Monetary Policy Committee (MPC) is expected to leave interest rates at 5.25 per cent at its meeting on Thursday.
The ONS said the upwards pressure on the February inflation figures partly came from an increase in motor fuel prices, while falling food prices pushed the overall number lower.
"Food prices were the main driver of the fall, with prices almost unchanged this year compared with a large rise last year, while restaurant and cafe price rises also slowed," said Grant Fitzner, chief economist at the ONS.
"These falls were only partially offset by price rises at the pump and a further increase in rental costs."
While the better-than-expected fall in overall inflation was welcomed, core inflation, which excludes energy and food, fell in line with forecasts to 4.5 per cent from 5.1 per cent.
However, inflation in the services sector, on which the BoE keeps a close eye, fell less than expected, from 6.5 per cent in January to 6.1 per cent.
"Inflation has not just fallen decisively but is forecast to hit the 2 per cent target within months," British Chancellor Jeremy Hunt said.
"This sets the scene for better economic conditions, which could allow further progress on our ambition to boost growth."
Too high for too long?
Nonetheless, some analysts believe in its battle against inflation, the BoE may have set interest rates too high for too long.
“The Monetary Policy Committee has in all likelihood already left it too late,” Benjamin Nabarro, chief UK economist at Citi.
“Evidence for a tough ‘last mile’ on inflation feels limited.”
Crushing inflation into the ground strikes many economists as counterproductive, because keeping interest rates too high for too long can seriously stifle economic growth.
“When does an abundance of caution turn to negligence?” Mr Nabarro said.
Meanwhile, Paul Dales, chief UK economist at Capital Economics, predicted inflation will start falling more rapidly than the BoE expects.
"In April, we forecast CPI inflation will plunge to 1.7 per cent – BoE 1.9 per cent – and, more strikingly, while the BoE thinks it will rebound to 2.7 per cent by August, we think it will fall close to 1 per cent," he said.
"From April, CPI inflation in the UK will be comfortably below inflation in the US and eurozone. That may prompt the BoE to starting cutting interest rates in the summer – perhaps in June – and inflation of 1 per cent may force it to reduce rates to 3 per cent next year rather than to 4 per cent as expected by investors."
Lead economist at the Confederation of British Industry, Alpesh Paleja, said that while inflation is now heading in the right direction, it will fall below the BoE's target "sometime in the spring".
“However, the path beyond this is likely to be bumpy. Shifting base effects mean that it will likely rise back above 2 per cent later in the year.”
'Light at the end of the inflationary tunnel'
While today's inflation figures have sparked a debate over whether or not the BoE has done too much and will soon overshoot its own inflation, some economists felt the signs were positive in the long battle against rising prices, which have battered UK businesses and households alike.
“The journey towards lower inflation has been painful and costly for business," said Dr Roger Barker, director of policy at the Institute of Directors.
"However, this data demonstrates that there is light at the end of the inflationary tunnel.
"Although business confidence in the UK economic outlook remains at depressed levels, today’s figures provide a welcome tonic.”
