February inflation at lowest level in over two years

The rate of inflation slowed to 3.4% in February 2024.

After sticking at 4% last month, the rate of inflation in the UK dropped to 3.4% in the year to February, according to figures released today by the Office for National Statistics (ONS).

This moves inflation closer towards the 2% target set by the Bank of England.

While the rate of inflation has fallen compared to last month, prices are still higher than they were this time last year. However, they have increased at their slowest rate since September 2021, when inflation stood at 3.1%.

And inflation is now significantly lower than its October 2022 peak of 11.1%.

There will be hopes that inflation will continue to go down over the next few months and that, as a result, the Bank of England base rate will also fall at some point this year.

The Bank of England Monetary Policy Committee (MPC) meets tomorrow to decide where to set the base rate, and these latest inflation figures will be one of the key factors in its decision.

Why has inflation fallen?

One of the main reasons behind the drop in inflation is the slower rise in the price of food and non-alcoholic beverages. While these prices still rose by 5% in the year to February, this was significantly lower than the 7% rise we saw in January.

Bread and cereals saw the slowest rise in this category, and packs of cakes and certain bread products (including white sliced loaves) even saw their prices drop between January and February.

Elsewhere, restaurants and cafes also helped contribute to inflation’s downwards trend this month.

However, overnight accommodation, household services and fuel were some of the sectors that pushed up the inflation figure, as these prices remain at a high level.

What does this mean for your savings?

This fall in CPI means that 80% of standard savings accounts currently beat inflation, a far cry from this time last year when none were able to do that.

Some top fixed rates have decreased slightly over the past month, though activity in the market has been mixed recently - with some providers raising their interest paid in recent weeks.

Top variable rates across savings accounts and ISAs continue to hold very steady as they have in recent months, though any potential reduction in base rate may precipitate more movement in this area of the market.

It remains the case, despite the Financial Conduct Authority’s continued focus on Consumer Duty, that big banks are still failing to offer variable rates which are competitive with the rest of the market. However, it’s always wise to check the terms and conditions of all accounts regardless of their headline rate, as some may have restricted accessibility or availability.

The new tax-year in April is only a fortnight away, and savers who wish to utilise their full ISA allowance now have limited time to do so. Providers would traditionally improve their ISA rates, as competition for last-minute investment intensifies.

The Bank of England’s projection is that inflation will sit at around 2.8% by Q1 2025, which should allow consumers plenty of options to see real term returns on their cash savings. It remains crucial, as ever, that savers consider all options available to them, and are prepared to switch if they could be better served elsewhere.