U.K. Consumer Prices Slows in February

• U.K. Consumer Prices Slows in February

U.K consumer prices unexpectedly declined in February as pound outlook improved amid possible Brexit transition deal.

Consumer Price Index which measures inflation rate rose 2.7 percent in February, down from 3 percent recorded in January, the Office for National Statistics reported on Tuesday. Analysts had predicted 2.8 percent. Core inflation rate gained 2.4 percent in the month.

Producer prices grew at 2.6 percent in February, the lowest rate of increase since 2016. While annual input cost surged 3.4 percent, also the lowest since the Brexit referendum of June 2016.

Experts attributed the improvement to fall in fuel prices and the slowdown in food prices in recent months when compared to a year ago. However, the surged in pound value in the first quarter has helped lower import cost and help import-dependent businesses.

“Many of the early 2017 prices increases due to the previous depreciation of the pound have started to work through the system,” said Phil Gooding, head of CPI at the ONS.

The slowdown is expected to further help crystalize growth among consumers, who have struggled with persistent rise in prices and sluggish wage growth in the past year. Also, sales in the retail sector are expected to pick up if current pound appreciation is sustained, especially now that the Brexit transition agreement is receiving positive attention.

This, improved inflation number and U.K. economic resilience will renew business confidence and support the widely expected Bank of England’s rate hike in May.

However, prices remained high in clothing and footwear, especially women’s shoes. Furniture, routine maintenance and household equipment also contributed to the annual surge in prices.

The British Pound gained 0.1 percent against the Japanese Yen to 148.93 price level. Breaking the ascending trendline for third consecutive weeks, however, a close above that level should further validate rebound and open up the retest of 152.08 price level in days to come — provided no negative Brexit news.