Inflation rate confirmed ahead of Spring Statement - what this means for you (2025)

The ONS has today confirmed the rate of inflation for the 12 months to February, ahead of Chancellor Rachel Reeves' Spring Statement today

The latest data from the Office of National Statistics (ONS) has revealed that the UK's inflation rate for the 12 months to February now stands at 2.8%. This represents a 0.2 percentage point decrease from January's 3% rate, which was the highest recorded in 10 months.

However, it remains above the UK's target level of 2%.

The drop is less pronounced than anticipated, with analysts predicting a decline to 2.9%. It's worth noting that the decrease doesn't signify a reduction in prices, but rather a slower rate of increase.

This news comes ahead of Chancellor Rachel Reeves' Spring Statement.

The ONS attributes the decrease in inflation to lower prices in clothing, housing, and household services, which was partially offset by a slight increase in the cost of alcoholic beverages, reports the Mirror.

Core inflation, excluding energy, food, alcohol, and tobacco, rose by 3.5%, marking a 0.2 percentage point decrease from January.

Commenting on the announcement, Jonny Black, Chief Client Experience Officer at Aberdeen Adviser, cautioned that despite the dip, the road ahead is "anything but smooth". He stated: "The Bank of England still expects it to peak at 3.7% by summer. And, in such volatile conditions, sudden shocks in the global economy could push this higher, faster."

What is inflation?

Inflation tracks the variation in prices over time. For instance, if an item cost £1 a year ago and now is priced at £1.03, that equates to a 3% inflation rate for that product.

It’s vital to understand that a fall in inflation doesn't mean prices are dropping; rather, prices increase at a reduced pace.

The headline CPI figure acts as an overall benchmark, meaning actual price changes of specific items can diverge from this average. Each month, the Office for National Statistics (ONS) publishes inflation statistics, utilising a frequently updated "basket of goods" and services to monitor price shifts.

Exploring the connection between inflation and interest rates:

Controlling inflation within the UK is a task the Bank of England undertakes using the base interest rate. The Consumer Price Index (CPI), which gauges the evolution of product costs, indicates price escalation when inflation surges.

When inflation remains low, consistent, and predictable, it enables both individuals and companies to better manage their savings, expenditures, and investment strategies. This economic predictability underpins growth – a universal goal for governments.

A target hovers around keeping inflation close to 2%, prompting the bank to respond when price increment rates are excessively low or high.

The Bank of England initiated a series of interest rate hikes in 2021 with the aim of curbing inflation. The rationale behind this is that as interest rates rise, borrowing becomes pricier, which should theoretically lead to reduced spending and subsequently lower demand and prices.

In December 2021, the base rate was a mere 0.1%, but by August 2023, it had escalated to 5.25%. This rate remained unchanged until August 2024 when it was reduced by 0.25 percentage points to 5%, and has since dropped further to 4.5%.

So, what caused the inflation surge?

Inflation started its upward trajectory in 2021, reaching a peak of 11.1% in October 2022. This steady climb was primarily attributed to escalating energy and food costs.

Post-Covid demand for energy saw a significant increase, a situation further exacerbated by Russia's invasion of Ukraine. The conflict also contributed to a spike in food prices due to the rising costs of fertilisers and animal feed.

While both energy and food prices have seen a decrease in recent months, they remain elevated compared to pre-inflation levels. Over the past year, the UK has been striving to maintain stable inflation, although external factors have driven it upwards since the close of last year.