UKMar 24 2021

UK inflation falls to 0.4%

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UK inflation falls to 0.4%
Credit: Simon Dawson/Bloomberg

The UK's inflation rate fell to 0.4 per cent in February due to lower prices for clothes and second-hand cars, although an increase is expected in the coming months.

Figures from the Office for National Statistics, published today (March 24), showed consumer price inflation slowed to 0.4 per cent for the month of February, down from the 0.7 per cent reported for January.

This was caused by falls in the prices of clothes, second-hand cars and toys.

It reversed the trend of growing inflation seen in the previous two months, with 0.6 per cent seen in December and 0.7 per cent in January.

Jonathan Athow, ONS deputy national statistician for economic statistics, said: “A fall in clothing prices helped to ease inflation in February, traditionally a month where we would see these prices rise, but the impact of the pandemic has disrupted standard seasonal patterns.”

Inflation remains lower than the Bank of England's target of 2 per cent, which it believes enables a stable economy and steady growth.

While low inflation can be better for the consumer and the pound in their pocket, if it is too low it can be a sign of low demand for goods and services among consumers and of sluggish growth.

Inflation has been below its 2 per cent target since August 2019 and has been entrenched at a lower level for several years.

But there has been speculation inflation will soon return - with the Bank of England's chief economist Andy Haldane recently saying it was a "tiger" which central banks would struggle to tame.

Rachel Winter, associate investment director at Killik & Co, said: “Another month of lockdown has taken its toll on spending as the pandemic continues to impact consumer behaviour. We are seeing a long-term shift in key priorities, emphasised by the change in the basket of goods and services earlier this month."

She added: “While a post-pandemic spending surge combined with government support could lead it to increase in the coming months, the threat of further unemployment will have a big impact on confidence. 

“We’ll be watching these stats closely as the industries which have taken the biggest hit over the past year start to open their doors.”

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