CPI inflation came in at 2.8% for February, lower than the consensus expectation for 2.9% and down from 3.0% in January.
In monthly terms, CPI inflation was 0.4%, compared to -0.1% in January but down from 0.6% a year earlier.
Annual core CPI inflation (excluding energy, food, alcohol and tobacco) came in at 3.5%, down from 3.7% in January.
David Hollingworth, associate director at L&C Mortgages, said: “The attention will be on the Chancellor’s Spring statement later today. With cuts to spending widely anticipated, the surprise easing in the rate inflation in February will be welcome news.
"Although a slight reduction in the rate of inflation had been expected, today’s figures have outstripped expectation. That can have positive implications for mortgage rates if it helps to boost the market’s outlook for interest rate movements.
"Today’s news may not do enough to materially shift the forecasting though and although this should undoubtedly be seen as good news, it’s widely anticipated that the rate of inflation will lift again in coming months.
"The rate is still appreciably higher than the Bank of England’s target rate. With further rises to come, the message for interest rates is likely to remain one of rate cuts being on the cards but feeding through gradually.
"Mortgage rate have been much more stable recently, with most lenders making small improvements when they can. Although today’s figures are positive, I don’t expect to see a significant change to that pattern. Similarly, we’ll hope that markets will give a calm reception to any inflation increases in the months to come.”
Peter Stimson, head of product at MPowered Mortgages, commented: “If nothing else this will give the Chancellor one less thing to worry about as she braces for the backlash from today’s Spring Statement.
“But while both the headline rate of inflation, and the more telling core rate of CPI, have eased off, they’re still higher than both the Chancellor and the Bank of England would like.
"Any breather could be temporary, as April will bring an inflationary boost for households in the form of higher Council Tax bills and for businesses in the form of a surge in the cost of hiring people. April is also likely to see many firms agreeing annual pay rises, in many cases above inflation.
“The inflationary shadow which has shrouded the UK economy for the past three years has lightened but not lifted. Things may get worse before they get better.
“The question now is at what point might cooling inflation prompt the Bank of England to unleash its next base rate cut.
“While CPI is still well above the Bank’s 2% target, economic growth is a major worry. The economy slipped into reverse in January and the OBR is today expected to slash its growth forecast for 2025, so it may take only one more month of easing inflation for the Bank to resume its rate-cutting.
“At present the swap markets are pricing in two more base rate cuts for 2025, but with the economy stagnating, the Bank could be tempted to cut faster. A base rate below 4% by Christmas is possible - and this at least will be welcome news for the 1.8 million households due to remortgage this year.”
Dean Butler, managing director for Retail Direct at Standard Life, added: “Inflation falling to 2.8% will come as a boost to the Chancellor immediately ahead of the Spring Statement, but it's likely to rise again before falling and the path to a lower inflation, lower interest rate environment remains uncertain. Above-target inflation will make it harder for the Bank of England to justify the significant interest rate cuts that could help facilitate individual and business financial confidence – and potential economic growth. In some relief, most forecasters suggest a gradual return towards the Bank’s 2% target next year."
