UK inflation has declined more sharply than anticipated, delivering a timely boost to Chancellor Rachel Reeves as she prepares to present her highly anticipated Spring Statement in the House of Commons.
The unexpected drop in the consumer prices index (CPI) to 2.8% not only signals a slight easing of the cost-of-living crisis but also provides political breathing space for Reeves, who is under mounting pressure to stabilise the UK economy amid sluggish growth and fiscal constraints.
The improved inflation reading comes just hours before Reeves is expected to unveil new economic forecasts from the Office for Budget Responsibility (OBR), which are widely predicted to paint a challenging picture for the months ahead.
UK Inflation Rate (%): Nov 2024 – Apr 2025 (Projected)
| Month | Inflation Rate (%) |
| Nov-24 | 3.10% |
| Dec-24 | 2.50% |
| Jan-25 | 3.00% |
| Feb-25 | 2.80% |
| Mar 2025* | 2.5% (forecast) |
| Apr 2025* | 3.2% (forecast) |
*Forecast figures based on economic analysis from Capital Economics and Bank of England guidance.
UK CPI Inflation Falls to 2.8% in February 2025, Surpassing Forecasts
The UK’s Consumer Prices Index (CPI) inflation rate fell to 2.8% in February 2025, according to the latest figures released by the Office for National Statistics (ONS). This marks a sharper drop than anticipated, as many City economists had predicted a more modest decline to 2.9%.
This decline in inflation suggests that the cost of living, while still rising, is doing so at a slower pace compared to previous months. The drop follows a temporary increase in January, when CPI rose to 3%, up from 2.5% in December 2024.
The fall in CPI is being seen as a welcome development for both households and policymakers, especially as the country grapples with economic stagnation and high borrowing costs. It also arrives at a crucial moment for Chancellor Rachel Reeves, just ahead of her spring budget statement, offering a rare spot of encouraging economic news.
The CPI figure is a key indicator of inflation used by the Bank of England to guide interest rate decisions and assess the health of the UK economy.
Pre-Statement Timing Offers Rare Optimism
The ONS data was released just ahead of Reeves’ spring statement, during which she is expected to outline bleak projections from the Office for Budget Responsibility (OBR) concerning both the economy and public finances.
The UK economy has been teetering on the edge of stagnation, with households grappling with persistent cost-of-living pressures and elevated interest rates. Sentiment among consumers and businesses has also waned, fuelled by worries over tax hikes and the potential knock-on effects of global trade tensions, particularly from the United States.
Further Inflationary Pressures Expected
Despite the current reprieve, experts warn that inflation is likely to rebound in the coming months. A combination of surging wholesale energy prices and rising food costs could push inflation up again, with the Bank of England forecasting a possible peak of 3.7% later this year.
Households are already preparing for significant hikes in council tax, utility bills, and other essential expenses starting April. On the business front, concern is mounting over the incoming rise in employer national insurance contributions, set to be implemented next week following Reeves’s announcement in the autumn budget. Business leaders caution that this could lead to job cuts and price increases.
Analysts Warn of April Spike
While February’s decline in inflation has offered a brief window of optimism, economists are already cautioning that this may be short-lived. A convergence of factors is expected to trigger a fresh surge in prices from April, reigniting concerns over the cost-of-living crisis.
Paul Dales, chief UK economist at Capital Economics, predicts that inflation could drop slightly further to 2.5% in March, but warns that this will likely be reversed within weeks. He points to significant increases in regulated household costs that are scheduled to take effect next month.
Among the most pressing contributors to the anticipated inflation spike are:
- A 6.4% monthly increase in utility bills – As energy suppliers adjust tariffs to reflect the latest rise in wholesale prices, households will see a sharp uptick in their gas and electricity charges.
- A 26% surge in water bills – Water companies across the UK are set to raise prices substantially, citing investment in infrastructure and environmental improvements as key drivers.
- Inflation-linked council tax rises – Many local authorities are moving ahead with the maximum permitted council tax increases, which could push average bills up by several hundred pounds annually.
These changes are expected to drive headline inflation back above 3% in April, compounding financial pressures on millions of households already contending with stagnant wages and high borrowing costs.
Economists also note that April tends to be a seasonally volatile month for inflation data, as it coincides with the start of the new fiscal year, when a raft of regulated price adjustments typically come into effect. As such, the combined impact of utility, water, and council tax rises could deliver a significant inflationary jolt.
This anticipated spike is especially problematic for policymakers at the Bank of England, who are under pressure to balance the fight against inflation with the need to support a faltering economy. With price pressures looking increasingly stubborn, the likelihood of an early interest rate cut continues to recede.
Core and Services Inflation Remain Elevated
The latest report also showed that core inflation—which strips out volatile elements like food and energy—dropped slightly to 3.5% in February, down from 3.7%. However, inflation within the services sector, a key indicator closely watched by the Bank of England, remained unchanged at 5%, signalling persistent price pressure in that segment of the economy.
Impact on Monetary Policy
The stickiness of inflation is likely to limit the Bank of England’s ability to reduce interest rates in the near term. Additionally, it continues to push up government borrowing costs in financial markets, creating further fiscal challenges for the Chancellor.
