UK inflation slowed in February by slightly more than economists and the Bank of England had anticipated, possibly paving the way for interest rate cuts in the months ahead.
The lower-than-expected monthly fall to 3.4% was down from a 4.0% increase in January, and the lowest rate of inflation since September 2021, according to the Office for National Statistics.
The drop in the monthly change in consumer prices came from food, and restaurants and cafes, offset by upward contributions from housing and household services, and motor fuels.
The figures were published on the day that the BoE's interest rate-setters are due to vote on borrowing costs.
The March interest rate announcement is due tomorrow at midday.
Mike Randall, CEO of Simply Asset Finance, said: “This fall in inflation is an indication of recovery and businesses will hope to see this reflected in interest rates. However, it’s important to remember that SMEs are still accumulating cost pressures and face a number of ongoing challenges such as rising overheads and skills shortages. While news like this provides light relief it’s important that the need for support is not forgotten.
“A form of support did come in the Spring Budget as the Recovery Loan Scheme (now renamed the Growth Guarantee Scheme) was extended. A positive development for businesses and while for SMEs, they are having to continue as business as usual, we cannot ignore that access to funding and cost pressures continue to hamper their progress on a regular basis. We can only urge the Chancellor to stay true to his commitment of a ‘Budget for long-term growth’ by supporting the firms that make up 99% of our business landscape. By delivering on this promise, SMEs can be given a clearer path to growth - and one we hope will ultimately spur economic recovery forward.”
Neil Rudge, Head of Enterprise at Shawbrook, commented: "The rate of price rises fell further in February, marking another crucial milestone in the Bank of England's mission to achieve its 2% target rate this year. With wage growth also showing signs of slowing, both in the UK and overseas in Europe and the US, the interest rate cut the business community has been waiting for may not be far off, with some expecting rates to be cut as early as the summer.
"Steadier prices and cheaper borrowing costs will encourage many SMES to adopt more ambitious investment strategies and resume funding plans. Whilst the news is trending in the right direction, no two businesses are the same and whether they are gearing up for expansion or looking to shore up cashflow, accessing the correct funding remains critical."
