Belfast Telegraph

Respite for consumers as inflation expected to ease back to 2.8%

By Ben Woods

Households are set to catch a break from the persistent pressure on their finances as inflation eases for the first time since December.

Official figures released today are expected to show that the Consumer Prices Index (CPI) measure of inflation fell to 2.8% last month.

It would see the cost of living drop back from 3% where it is has remained since the end of last year.

Sterling's slide since the Brexit vote has ratcheted up the cost of living, climbing from 0.6% shortly after the EU referendum to a near six-year high of 3.1% in November 2017.

However, economists and the Bank of England believe inflation's upward march has run its course and it will start to unwind over the coming months.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the fall in inflation was unlikely to be a "one-off downside surprise".

He said: "Just as the (Bank's Monetary Policy Committee) was taken aback by how quickly core goods inflation shot up last year in response to sterling's depreciation, so it will be surprised again this year by how quickly it falls."

Motor fuels and food costs look set to be the main drivers behind inflation's fall, as a push from supermarkets to pass higher import prices down to consumers starts to wane.

Mr Tombs expects food price inflation to roll back to 3.5% in February, from 3.7% in January, knocking 0.02 percentage points off the headline rate.

He added: "We still think that the MPC will be surprised by how quickly inflation falls.

"We expect CPI inflation to fall to 2.1% in Q4, touching 2.0% in one month of the quarter, clearly undershooting the MPC's 2.4% forecast and ensuring that it raises the Bank rate only once this year."

The Bank is widely expected to keep interest rates on hold at 0.5% on Thursday.

But the meeting will be watched closely amid expectations of another hike in May.

Governor Mark Carney has already warned borrowers that rates will need to rise "somewhat earlier and by a somewhat greater degree" to get inflation back on target after stronger-than-expected growth in the economy.

Experts believe the comments last month paved the way for another quarter-point rate rise as soon as May, with one more due by the end of the year, and another in 2019.

That means rates could climb to 1.25%.

Belfast Telegraph

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