UK inflation remains disappointingly unchanged

UK inflation remained depressed at low levels in February, held back from the slight improvement expected due to falling prices for second-hand cars and bicycles that were offset by rising food prices.

According to the Office for National Statistics, CPI remained at 0.30% in February compared to the same month last year, which was shy of consensus forecasts for a slight rise to 0.4%.

In its February Quarterly Inflation Report, the Bank of England forecast inflation to average 0.4% in the first quarter.

On a month-on-month basis, February's CPI rose 0.20% compared to the -0.80% decline in January but short of the consensus estimate for a 0.40% rise.

Core inflation, a rate that excludes volatile prices such as for fuel and food, held at 1.2%, rather than nudging up to 1.3% as had been expected.

Transport prices declined by a wider to 1.1% from 0.7% in January, partly due to lower prices for second hand cars and bicycles the ONS said.

This was offset by the year-on-year fall in food prices narrowing to 2.4% in February from 2.8% in January, largely due to higher vegetable prices.

Maike Currie, investment director for personal investing at Fidelity International, noted that while this was the fourth consecutive month inflation in positive territory, the lukewarm inflation numbers were still far below the Bank of England’s target of 2%.

"Low inflation coupled with an anaemic outlook for the global economy, means there is little appetite from the Bank of England to raise UK rates any time soon," she said. "March 2016 marks the not-so-happy seven-year anniversary of interest rates remaining at the paltry post-crisis level of 0.5%."

Economist Howard Archer at IHS Global Insight added that while prolonged low consumer price inflation has been of major benefit to consumers, some employers were clearly using prolonged negligible inflation as a reason to limit pay awards, which is less good news for consumers.

"However, it is notable that the positive gap between earnings growth and consumer price inflation has diminished recently, thereby diluting consumers’ purchasing power even though it is still decent."

Meanwhile, ONS published a disappointing set public finance figures, with £7.1bn of government borrowing in February only a sliver below the previous February’s total and higher than the consensus forecast of £5.9bn.

Cumulative borrowing in the first 11 months of the fiscal year totalled £70.7bn, meaning that borrowing in March will have to come in at just £1.5bn for the OBR’s full-year forecast of £72.2bn to be met.

"Given borrowing last March was £7.3bn, that seems very unlikely," said Capital Economics Vicky Redwood. "That said, note that the OBR warned that the improvement in borrowing it expected to see towards the end of the fiscal year might only become apparent in later revisions."