UK May Cut Interest Rates This Summer... February Inflation Rate Slows to 3.4%

The market is increasingly weighing the possibility of the Bank of England (BOE) cutting its benchmark interest rate this summer. This is due to a slowdown in the inflation rate, with forecasts suggesting that inflation will soon reach the BOE's price stability target of 2%.

On the 20th (local time), the UK Office for National Statistics (ONS) announced that the UK's inflation rate for February was 3.4% year-on-year, marking the lowest level in 2 years and 5 months since September 2021 (3.1%). This figure is 0.6 percentage points lower than the previous month and even below the 3.5% forecast surveyed by major foreign media.

The core inflation rate, excluding energy, food, alcoholic beverages, and tobacco, was 4.5%, down from 5.1% in January. This also fell short of the market expectation of 4.6%. The service inflation rate decreased from 6.5% to 6.1%.

Andrew Bailey, Governor of the Bank of England (BOE).
Photo by AFP Yonhap News

UK inflation peaked at 11.1% in October 2022, the highest in 41 years. However, in recent months, the inflation rate has stabilized around 4%.

The UK Office for Budget Responsibility (OBR) recently projected that inflation will fall to the BOE's target level within the next few months. This has increased expectations for a BOE interest rate cut. BBC reported that "UK Chancellor Jeremy Hunt also said, 'As inflation approaches the target, the possibility of the BOE considering a rate cut has opened up.'"

Meanwhile, the BOE held its regular monetary policy meeting on the same day and will announce the results on the 21st. The market expects the benchmark interest rate to remain unchanged at 5.25%.