LONDON: British annual inflation slid to 3.0 per cent in February, official data showed on Tuesday, boosting the government on the eve of a key pre-election budget, according to economists.
The inflation rate dipped last month after striking a 14-month high of 3.5 per cent in January, the Office for National Statistics (ONS) said in a statement, citing a “widespread” number of downward pressures.
The data release pointed to an improving economic outlook one day before the eagerly-awaited budget, which comes before a general election that is widely expected to be held on May 6. The inflation reading, which was lower than market expectations for a figure of 3.1 per cent, comes as Britain continues to recover from a record recession.
“Any news (of lower inflation) is good news,” said IHS Global Insight economist Howard Archer. “The lower inflation is, the better for (government) spending plans,” he said. Higher inflation erodes the purchasing power of state expenditure.
“The government can obviously play on the fact that it should help to keep interest rates low,” he added. “But it is also probably a sign that underlying demand remains pretty weak,” he cautioned. British finance minister Alistair Darling will unveil his taxation and spending plans for 2010/2011 before parliament on Wednesday.
“February’s UK consumer prices figures... should bring some comfort that underlying prices in the UK economy remain pretty subdued,” added Capital Economics analyst Jonathan Loynes. He added that there was “nothing here to suggest” that the Bank of England needs to think about tightening its monetary policy.
The BoE’s key task is to use monetary policy to keep annual inflation close to a 2.0-per cent government-set target. The central bank had slashed its key interest rate to 0.50 per cent in March 2009, a move that helped drag Britain out of a record recession, which began in the second quarter of 2008 and finished in the final three months of 2009.
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