UK inflation has just fallen from 4% to 3.4%, the lowest we’ve seen since 2021 – but can the government really take credit for that?
Chancellor Jeremy Hunt has claimed this decline is proof that the government’s “plan is working”.
His Labour counterpart Rachel Reeves said otherwise, claiming “Britain cannot afford another five years” of the Tories.
Here’s what you need to know.
What is inflation and how is it measured?
Inflation is the measure of how prices of goods and services have increased over the last 12 months.
A decline in inflation does not mean a decline in prices – it just means they are going up at a slower rate.
What brought inflation down?
The Office for National Statistics (ONS) has revealed that inflation fell from 4% in January to 3.4% in February – very welcome news after a long, tough period for Brits.
ONS chief economist Grant Fitzner explained: “Inflation eased in February to its lowest rate for nearly two and a half years.
“Food prices were the main driver of the fall, with prices almost unchanged this year compared to a large rise last year, while restaurant and cafe price rises also slowed.
“These falls were only partially offset by price rises at the pump and a further increase in rental costs.”
However, it is worth remembering that the UK still has the highest inflation rate among the G7, and has experienced more inflation in the last four years than any most of Western Europe.
Is the government responsible for inflation?
Well, no, not directly – it just sets the inflation target of 2%. But, Hunt has taken credit for the decline in inflation anyway.
He said on Wednesday morning that this was proof “the plan is working.”
He added: “The difficult decisions the government has taken over the last year are paying off.”
However, the government has not always been so keen to align itself with inflation.
When inflation peaked at 11.1% in October 2022 (a 41-year high), the government was quick to attribute this to global factors like Covid recovery and the strain on energy supplies the Ukraine war put on countries everywhere.
But, Rishi Sunak still promised to halve it at the start of 2023 – it ended up being the only one of his five pledges he managed to fulfil last year.
Paul Johnson, director of the IFS, an economics think tank, told the BBC last year that inflation is not the government’s job, but the Bank of England’s.
He said it was “inappropriate” and “opportunistic” to take responsibility for the falling inflation when the Bank had already forecast that inflation would halve in 2023.
However, the government could have made it worse by borrowing and spending too much, causing major upset to the economy – but that would hit the public purse more than national inflation.
The government has also prevented people from spending as much by freezing tax thresholds, but that was more of an effort to raise taxes rather than to help inflation.
How does the Bank of England bring inflation down?
It is the Bank of England’s job to keep inflation at 2%. That’s enough to keep the economy growing at a steady rate while also stopping the cost of living skyrocketing.
The central Bank is independent to the government and manages prices by controlling the interest rate – that’s the charge lenders impose on those borrowing.
Since August 2023, the Bank has kept interest rate at 5.25%, the highest the UK has seen since the financial crisis of 2008.
The Bank’s Monetary Policy Committee will announce the next interest rate tomorrow based on today’s inflation rate news.
According to Forbes, the Bank is expected to keep the interest rate the same because inflation can easily bounce back up – but there are hopes the Bank may now be considering bringing rates down in the summer.
Cheaper gas and electricity from April onwards is expected to help, too, as has the modest growth to the economy (which grew by 0.2% in January, following on from a technical recession in the latter half of 2023).
When is the next inflation report?
The Office for National Statistics will release the data for March’s inflation on April 17, at 7am.