UK's inflation rate was lower than expected at 3.4% year-on-year in February, down from 4% in January and its lowest level since September 2021, official data showed Wednesday.

Month-on-month returns to positive territory, as the main consumer price index increased by 0.6% after a -0.6% reading in January. The London Stock Exchange Group (LSEG) data showed that economists surveyed had expected a monthly rate of 0.7% and an annual rate of 3.5% for February.

UK in Easing Inflation Rate

According to the Office for National Statistics (ONS), food, dining establishments, and coffee shops had the most negative impacts, while housing and gasoline had the greatest positive effects.

ONS reported that compared to January's 7% annual rate, February's 5% rate for food and non-alcoholic drinks was the lowest since January 2022.

"The rate has eased for the eleventh consecutive month from a recent high of 19.2% in March 2023, the highest annual rate seen for over 45 years," the agency said.

The widely watched core consumer price index (CPI), which does not include the volatile food, energy, alcohol, and tobacco prices, came in at 4.5% annually, which is lower than the consensus expectation of 4.6% and lower than January's 5.1% estimate.

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Positive Trend for Families in UK

Following Wednesday's statistics, UK Finance Minister Jeremy Hunt issued a statement, saying that improving economic circumstances have paved the way for dropping inflation, CNBC reported.

Following two years of aggressive interest rate hikes to rein in prices, the Bank of England anticipates headline inflation will momentarily decline to its 2% objective in the second quarter before rising again later in the year.

As it considers whether to start cutting rates, the central bank will likely retain them at 5.25% when it meets on March 21 to determine its next monetary policy action.

Zara Nokes, a global market analyst at JPMorgan Asset Management, believes that this inflation print further proves that consumers' outlook is improving after a rough couple of years for UK families.

"More good news should be on the way with headline inflation likely to drop below the 2% inflation target in the Spring, but crucially, this is largely being driven by a transitory fall in energy prices," Nokes noted. 

"The Bank will instead be keeping a watchful eye on the medium-term inflation outlook, particularly the domestically-generated inflation originating from the services sector," she added.

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