Why has inflation fallen and what does it mean for households?

UK inflation fell by more than expected last month, with the price of clothes and shoes declining for the first time in more than three years.

Consumer Prices Index (CPI) inflation was 2.8% in February, down from 3% in January, the Office for National Statistics (ONS) said.

But economists have warned that it could reflect a temporary dip before prices are set to rise sharply from April.

Here the PA news agency looks at what the latest inflation data means for households and the economy.

– What is inflation?

Inflation is the term used to describe the rising price of goods and services.

The inflation rate refers to how quickly prices are going up.

February’s inflation rate of 2.8% means that if an item cost £100 a year ago, the same thing would now cost £102.80.

It is below the 3% inflation rate recorded in January, meaning that prices are still increasing, but at a slower rate than they previously were.

– What made inflation go down?

The ONS said the biggest driver of lower inflation last month was a drop in the overall prices of clothes and shoes, which have not fallen for more than three years.

In particular, women’s clothes saw one of the largest movements in inflation, while prices fell faster for children’s clothing in February.

The ONS said it was unusual for prices to drop between January and February when Christmas sales typically end and new ranges are launched.

The British Retail Consortium, a trade association representing the UK retail sector, said the figures suggest that retailers continued slashing prices amid weaker sales.

The BRC’s director of insight Kris Hamer said: “Heavy clothing and footwear discounting continued into February, as fashion sales continue to suffer due to unseasonal weather throughout the month.”

– Will inflation keep falling?

While inflation slowed in February, economists believe price rises will accelerate next month.

The Bank of England said it thinks inflation will rise temporarily this year, peaking at 3.7%, largely because of higher energy prices.

It is then expected to fall back to the 2% target.

This means that living costs will rise at a faster rate during the year – but still remain significantly slower than during the peak of the cost-of-living crisis in 2023 when inflation surpassed double digits.

Rob Wood, chief UK economist at Pantheon Economics, said “February was the calm before the storm of annual price resets, Government-set price hikes and tax rises”, with inflation predicted to jump to 3.5% in April.

– Why are prices going to increase in April?

A number of bill rises will come into force at the start of April, when the new tax year begins.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said inflation could be driven higher in what has been dubbed as “awful April”.

“The energy price cap is forecast to go up by £85 to £1,823 – which would be its highest level since the beginning of last year,” she said.

“This is on top of rises in everything from water bills – up £123 on average – to council tax – up an average of £109.”

Many firms tell us they will have to raise prices and rethink recruitment when national insurance contributions and national living wage increases kick in next month

– How will taxes affect the cost of living?

The Labour Government has said it is not increasing taxes for working people, so big things like income tax rates will not change next month.

However, taxes are set to rise for many businesses when a higher rate of employer national insurance is introduced.

A number of retailers and hospitality businesses have indicated that they will be forced to pass on the impact of higher costs to customers through price hikes.

This could mean people see prices in shops, from supermarkets and fashion chains to pubs and restaurants, go up.

David Bharier, head of research at the British Chambers of Commerce, said: “Volatility will be a key feature for the next few months. SMEs are battling shocks from both home and abroad in the form of domestic tax increases and a looming global tariff war.

“Many firms tell us they will have to raise prices and rethink recruitment when national insurance contributions and national living wage increases kick in next month.”

If you’re looking for a remortgage, this is really positive news, but there’s no getting away from the fact that you’re still going to be remortgaging onto a higher rate than your current one

– What does the fall in inflation mean for mortgages?

Falling inflation means cost-of-living pressures are easing, which could put more money in some people’s pockets.

Ben Thompson, deputy chief executive of the Mortgage Advice Bureau, said the figures will leave “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,” he said.

Hargreaves Lansdown’s Ms Coles said: “Mortgage rates have been easing off in recent weeks, with the average two-year fixed rate mortgage falling from 5.42% a month ago, to 5.33% (Moneyfacts).

“Inflation coming in slightly lower than expected could strengthen this trend.”

“If you’re looking for a remortgage, this is really positive news, but there’s no getting away from the fact that you’re still going to be remortgaging onto a higher rate than your current one,” she cautioned.