UK inflation nudges ahead but remains under Bank of England target

Inflation held steady in February, official data showed on Wednesday, further fuelling expectations that the Bank of England will leave interest rates unchanged when it meets later this week.

The consumer price index including housing costs was 1.8% in February, unchanged on the previous month, according to the Office for National Statistics.

Stripping out volatile housing costs, the 12-month rate was 1.9%, up on January’s rate of 1.8% and above City forecasts for no change.

Mike Hardie, head of inflation at the ONS, said: “The rate of inflation is stable, with a modest rise in food as well as alcohol and tobacco offset by clothing and footwear prices rising by less than they did a year ago.”

Food, alcohol and tobacco prices all increased, while prices across the recreational and services sectors rose by 3.1% on the year. Transport – another large contributor – increased 3%. Within those sectors, package holidays and cars were the most notable upward contributors, according to the ONS.

However, that was offset by clothing and footwear, which saw prices rise but by less than they did in the same period a year ago. In the year to February, prices of clothing and footwear fell 2%.

Tom Stevenson, investment director for personal investing at Fidelity International, said: “The Bank of England can sit on its hands again this week, safe in the knowledge that inflation remains under its 2% target.

“The unemployment rate [is at] a 44-year low of 3.9% and reported wages rose by 3.%. Together with apparently subdued inflation, that continues to pain a rosy picture of the UK economy ahead of the Bank of England’s rate decision”.

Nick Kilbey, sales trader at Foenix Partners, said: “This morning’s UK inflation print beat expectations, after a rise in food and alcohol costs. With the print still holding below the central bank’s target of 2%, Mark Carney’s interest rate decision will be easy considering the continued Brexit doom and gloom hanging over the UK.”

Looking forward, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, saw a rate rise from the BoE as likely, but not until later this year.

“CPI inflation will likely remain close to the 2% target throughout 2019, as the cross-currents from falling goods inflation and rising services inflation cancel each other out," he said.

“This rise in services inflation, however, will prompt the monetary policy committee to get ahead of the curve and raise the bank rate from its still-stimulatory level before the end of this year to prevent inflation from overshooting the 2% target further ahead.”