The ONS has announced that UK inflation (CPI) fell to 2.8% in the year to February, down from 3% last month—slightly better than expected and a rare piece of good news for Chancellor Rachel Reeves. The biggest contributor? Falling prices in women’s clothing.
But don’t celebrate just yet. Analysts predict inflation will rise again, potentially peaking at around 4% by September before easing back. April brings fresh financial pressures, with employer NIC hikes, minimum wage increases, and rising bills (council tax, water, and more). The Bank of England’s 2% target still feels a long way off.
Spring Statement: What’s Coming?
Chancellor Rachel Reeves delivers her first Spring Statement this afternoon—what will she announce? Find out what experts are predicting ahead of the speech [HERE].
Spring Statement Updates & Expert Insights
We’ll be covering all the key takeaways from the Spring Statement, right here on IFA Magazine. For everything advisers need to know, visit our dedicated Spring Statement section tomorrow.
Inflation Industry Reactions: What’s Next for Inflation, Interest Rates, and The Property Market?
Market watchers are already weighing in on the latest inflation data. What does it mean for interest rates—and for the Chancellor? Read on to see the expert takes.
Danni Hewson, AJ Bell head of financial analysis, comments on the latest inflation data saying: “Anyone who has opened one of those delightful envelopes containing information about how much your water bill, your broadband costs and your council tax are set to rise by in April will have already forgotten that things felt a little lighter in February.
“Energy prices are also due to increase as the price cap edges up, though many households will have grabbed onto fixed tariff deals which will help them smooth out their household’s inflationary journey.
“This dip in inflation was slightly deeper than had been expected by economists, but it’s hard to get excited about one month’s data when we’re all hyper aware that things are about to get more difficult once again. In many cases wage increases will help offset the price hikes hurtling our way, as will the uprating in pensions and benefits, though in most cases those extra pennies have probably already been spent.
“The fall in the price of women’s clothing is only really helpful if you needed to update your spring wardrobe. Meanwhile food inflation held steady and as the duty on non-draught alcohol jumped up the price of our favourite tipple became more expensive.
“The big question on many homeowners or would-be homeowners’ minds will be whether the Bank of England cuts rates in May and how far they might fall by the end of the year. Expectation of a May cut has edged up slightly this morning, but MPC members have a lot to consider, balancing the need to boost a stagnant economy with nudging inflation back towards target at a time global trade concerns are prevalent.
“Today’s insight from the OBR into how lacklustre the UK economy is looking will have to be weighed along with the expectation that many businesses will feel they have no choice but to put up prices once those increased labour costs hit the books.”
Nathaniel Casey, Investment Strategist at wealth management firm Evelyn Partners, comments: ‘Both core and headline CPI came in just below consensus expectations in February. Nonetheless the UK continues to face stickier inflationary pressures compared with other advances economies. This has been reflected in the bond market, with gilt yields remaining higher than their European counterparts such as German bunds, even as both markets face a similarly weak growth profile.
‘While the February inflation data came in below economists’ expectations, it follows a stronger than expected set of figures in January and remains stubbornly above the Bank of England’s target of 2%. The BoE expects inflation to accelerate higher over course of 2025, before slowly returning to target in 2026.
‘In the data, services CPI inflation remains elevated at 5.0% year-over-year, over twice the rate it was in December 2019, before the pandemic. Outside of services, goods CPI inflation came in at 0.8% year-on-year and remains a drag on the overall rate of inflation. The category for clothing and footwear was the largest downward contributor to this month’s data, taking 0.14% off the annual headline rate. While alcohol & tobacco as well as communication were the largest upward contributors.
‘All eyes will be on the Chancellor of the Exchequer Rachel Reeves later today as the Office of Budget Responsibility (OBR) is expected to deliver a downgraded UK growth outlook which could wipe out the fiscal headroom that she created during the Budget last Autumn. With a slashed growth outlook and inflation still proving stubborn, Reeves faces a challenging task later today when she delivers her Spring Statement as she tries to balance the economy’s need for growth while balancing the books and staying within her own fiscal rules.
‘With rising energy price caps expected over the coming quarters, the BoE will have to balance the risks of low growth and above-target inflation. In our view, the growth risks outweigh the inflation risks, and the Bank will cautiously continue its interest rate cutting cycle over the coming quarters.’
Commenting on the latest CPI data from the ONS, Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner said: “In a bit of welcome news prior to the Spring Statement, inflation in the UK as measured by the Consumer Price Index rose by 2.8% in the 12 months to February 2025, down from 3.0% in January. While still above the Bank of England target, it comes as relief, albeit temporary, for the beleaguered government. Core inflation, which excludes volatile components like food, alcohol and tobacco, came in lower. Services inflation remained resolutely at 5%, the same as January.
“Being an indicator of domestic pressures, the reading of Services inflation was disappointing, but overall, the inflation numbers were lower than expected. The central bank had recently put rates on hold on the back of economic and global trade uncertainty, but the Chairman reassured that interest rates were on a “declining path”, reiterating its commitment to “to make sure that inflation stays low and stable”.
Jonny Black, Chief Client Experience Officer at Aberdeen Adviser, said: “Inflation may have dipped, but the road ahead is anything but smooth, and the Bank of England still expects it to peak at 3.7% by summer.
“And, in such volatile conditions, sudden shocks in the global economy could push this higher, faster.
“Investors and savers shouldn’t be complacent and financial advisers will continue to play a vital role in helping people achieve their financial goals. The cost-of-living squeeze is far from over, and those sitting on cash savings risk watching their money gradually lose value in real terms. Considering seeking a higher return for those funds – potentially by investing in non-cash assets – will be important for keeping ahead of inflation’s bite.”
Lindsay James, investment strategist at Quilter said: “With Rachel Reeves up at the despatch box later today to reassure not only investors, but the nation that the economy is doing just fine, today’s inflation figures are a reminder of what lurks ahead. Inflation came in at 2.8%, with core inflation remaining very sticky at 3.5%, both marginally better than expected. While this is only moderately above target, the news looks fairly bleak as we move through the year, leaving the government with plenty of work to do.
“Energy prices are due to climb as the price cap rises in the coming months. Coupled with this the uncertain economic policy coming from across the Atlantic and the outlook for inflation looks decidedly negative. Furthermore, UK wage growth continues to be surprisingly strong, while imminent hikes to national insurance contributions from employers is likely to lead to higher prices. We are also seeing consumers struggling, with spending being held back. Interestingly, February usually sees clothing prices rise as spring product ranges hit the shops, but these statistics show the first fall between January and February since 2021 when the pandemic hit sales patterns.
“There is a cocktail of risks right now for the UK when it comes to inflation, and this is only adding to the ‘stagflationary’ fears. Economic growth is miniscule and risks going backwards, but should inflation continue to refuse to get back near the 2% target, it is difficult to see what the Bank of England can do with interest rates. Not cutting or not doing it quick enough may be enough to tip the economy back into recession, but cutting too soon or to quickly and you risk adding fuel to the inflationary fire.
“The Chancellor is unlikely to announce much today that will help quell the fears around the UK economy. The UK is not immune from Donald Trump’s trade wars, and as such it is likely things will continue to look bleak for the UK economy until the government can reverse sentiment and see some of its policies having the desired effect.”
Scott Gardner, investment strategist at J.P. Morgan owned digital wealth manager, Nutmeg, said: “UK inflation fell marginally during February, beating market expectations but remaining well above the target rate of 2%. This is positive news but unlikely to convince the doubters after previous data showed a large jump in inflation during January.
“Consumers might feel as if they have been caught in a balancing act with several price changes partially offsetting one another during February. While core inflation marginally fell during the month, manufacturing PMI prices showed an uptrend and services inflation remained flat. Likewise, weekly food shops were impacted by a further increase in checkout prices meanwhile motorists saw a year-on year fall in the cost of petrol.
“This latest data offers a momentary reprieve for UK consumers, but some might see this as the calm before the storm after several forecasts have suggested that inflation could move closer to 4% over the course of 2025.
“It is too early to tell what the impact of the upcoming changes to National Insurance for businesses will be, but inflation shows upside risk in the second half of this year. For now, we will be watching to see what verdict the OBR delivers about this matter during the Spring Statement later on Wednesday.”
What do these latest inflation data mean for the mortgage and property markets?
Daniel Austin, CEO and co-founder at ASK Partners, said: “A slight dip in UK inflation offers a welcome signal following last week’s interest rate hold, though it highlights the ongoing balancing act amid Trump-driven market volatility, evolving tariff policies, and potential UK tax changes from today’s Spring Statement. The key question now is how quickly lenders adjust mortgage rates and whether this pause on rates holds. For homeowners and buyers, the desire for lower borrowing costs is clear, but persistently high fixed mortgage rates may limit immediate relief. Still, a more stable rate environment could gradually rebuild buyer confidence, especially among those waiting for clearer economic cues.
“For investors and developers, the path toward rate cuts remains pivotal, with even a modest inflation drop supporting that trajectory. Demand continues to thrive in resilient, high-growth sectors like co-living and build-to-rent, where persistent supply shortages keep capital flowing. As potential policy shifts and economic changes loom, agility is crucial. If rates ease, as some anticipate, it could fuel a more sustained recovery in transactions and investment flows. However, with uncertainty still clouding the outlook, strategic financial planning remains essential to navigating what comes next.”
John Phillips, CEO of Just Mortgages and Spicerhaart, said: “Some good news on inflation will be welcomed by the Chancellor as she prepares to deliver her Spring Statement today. However, it looks like it could be just a blip as the government’s policy on national insurance and other tax hikes will soon filter into the equation. That’s on top of changes to energy prices and council tax also due soon, as well as any further geopolitical escalation we could see.
“Economists suggest September as the peak for inflation and remain confident that inflationary pressures will eventually subside and return to the 2% target. As we’ve seen though, predicting inflation can be a fool’s errand – particularly in this economic climate. All eyes will be on the MPC to see how it responds to this changing picture. While its gradual and careful approach is important and works to a point, we also need decisive action to safeguard the economy and support the key drivers of economic growth – such as the property market.
“Attention now turns to the Chancellor’s announcement at midday, with hopes that any potential spending cuts or further tax rises don’t end up fuelling inflationary pressures. We’ve already seen some positive news around additional funding for affordable housing – let’s hope she is able to squeeze in some support to enable more people to buy.”
Nathan Emerson, CEO at Propertymark, comments: “This news will provide relief to many homeowners considering both the domestic and international pressures that the UK economy is currently facing and shows that the Bank of England’s cautious path last week to keep interest rates at 4.5 per cent is providing stability.
“This drop in inflation should also provide a positive backdrop to the Chancellor’s Spring Statement later today as she looks to curb some department spending. Many people approaching the housing market will likely feel a welcome degree of optimism, especially considering the spring and summer months tend to be the busiest times of the year for the housing market.”
Richard Pike, chief of sales and marketing at Phoebus Software, says: “Today’s inflation figures are a surprise, and could be interpreted that price pressures may be stabilising. For homeowners and prospective buyers, this could signal hope that interest rates may ease sooner rather than later, improving affordability in the mortgage and housing markets. However, challenges remain, and stability must be maintained to support borrowers and ensure long-term financial resilience. We wait to see the economic impact of the increase in taxes taking effect from next month.
“Looking forward to this afternoon’s Spring Statement, with housing supply still failing to meet demand, we need to see clear, actionable policies that unlock and finance development. Supporting major house builders and SME developers, streamlining planning regulations, and providing targeted incentives for later-life and affordable housing could all help contribute to making a more accessible market.
“At the same time, improving property transaction efficiency through better digital infrastructure would benefit lenders, intermediaries, and buyers alike. Addressing these challenges head-on is key to ensuring a more stable and sustainable housing market for the future.”
Ben Thompson, Deputy CEO, Mortgage Advice Bureau:
“According to our latest poll, 62% of financial services professionals believed last month’s inflation rise would have a negative impact on buyer confidence. However, inflation falling to 2.8% is likely to counterbalance this, leaving aspiring and current homeowners breathing a sigh of relief.
“Coupled with the Bank of England’s decision to hold interest rates last week, this slow and steady approach should give further comfort to prospective buyers. Borrowers are slowly getting used to the fact that mortgage rates are unlikely to fall much further from here, and that this is broadly where new pricing is.
“This is where the value of using an expert adviser cannot be underestimated. They’ll navigate current market conditions to provide you with options bespoke to your financial needs, so you can get mortgage ready.
“In the meantime, focus must now shift to today’s Spring Statement, and how else the government can make homeownership more affordable in current market conditions, and, of course, drive economic growth.”
Simon Webb, managing director of capital markets and finance at LiveMore, says: “A slowdown in inflation is a positive sign and offers hope that financial pressures may start to ease. Compared to this time last year, we’re in a better position and this inflation reduction will support growing optimism that interest rates could continue to fall. While the impact of higher rates is still being felt, particularly by those on fixed incomes or who have moved onto standard variable rates, for older borrowers, the good news is that the mortgage market has evolved, with more flexible options available than ever before. Ensuring people aged 50 to 90+ are aware of their choices will be key to helping them navigate this period and plan for the future with confidence. Tools such as the LiveMore Mortgage Matcher® can help brokers navigate the later life market so they can find affordable solutions for clients’ specific circumstances in these changing times.”
“With the Spring Statement this afternoon, we want to see the Government take meaningful steps to support mid-to-later-life borrowers, many of whom still struggle to access mainstream mortgage products. Stamp duty remains a major barrier to downsizing, preventing housing stock from circulating efficiently, and targeted reform could help older homeowners free up equity while making larger homes available for families. Modernising affordability assessments to better reflect pension income and investments would also ensure that financially responsible borrowers aren’t unnecessarily locked out of the market. A more inclusive approach to lending would benefit not just older borrowers, but the housing market as a whole.”
