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| What is the UK inflation rate and how does it affect me? | What is the UK inflation rate and how does it affect me? |
| (about 20 hours later) | |
| Prices in the UK rose by 3.4% in the year to February 2024, the lowest rate since September 2021. | |
| However, this remains above the Bank of England's 2% target, and Bank governor Andrew Bailey said it was still too soon to cut interest rates. | |
| What does inflation mean? | What does inflation mean? |
| Inflation is the increase in the price of something over time. | Inflation is the increase in the price of something over time. |
| For example, if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%. | For example, if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%. |
| How is the UK's inflation rate measured? | How is the UK's inflation rate measured? |
| The prices of hundreds of everyday items, including food and fuel, are tracked by the Office for National Statistics (ONS). | The prices of hundreds of everyday items, including food and fuel, are tracked by the Office for National Statistics (ONS). |
| This "basket of goods" is regularly updated to reflect shopping trends, with vinyl records and air fryers added in 2024, and hand sanitiser removed. | This "basket of goods" is regularly updated to reflect shopping trends, with vinyl records and air fryers added in 2024, and hand sanitiser removed. |
| The ONS looks at price changes over the previous 12 months to calculate inflation. | The ONS looks at price changes over the previous 12 months to calculate inflation. |
| The main inflation measure used is called the Consumer Prices Index (CPI). | The main inflation measure used is called the Consumer Prices Index (CPI). |
| One reason CPI fell to 3.4% in February was an increase in petrol and diesel costs, which offset a drop in food price inflation. | One reason CPI fell to 3.4% in February was an increase in petrol and diesel costs, which offset a drop in food price inflation. |
| What is core inflation? | What is core inflation? |
| The Bank of England also considers something called "core inflation" when making decisions about interest rates. | The Bank of England also considers something called "core inflation" when making decisions about interest rates. |
| This excludes the price of energy, food, alcohol and tobacco - which can change often - to get a closer picture of price rises. | This excludes the price of energy, food, alcohol and tobacco - which can change often - to get a closer picture of price rises. |
| Core inflation was 4.5% in February. | Core inflation was 4.5% in February. |
| Why are prices still rising? | Why are prices still rising? |
| Soaring food and energy bills were the main causes of the UK's recent high inflation. | Soaring food and energy bills were the main causes of the UK's recent high inflation. |
| Oil and gas were in greater demand after the Covid pandemic, and prices surged again when Russia invaded Ukraine, cutting global supplies. | Oil and gas were in greater demand after the Covid pandemic, and prices surged again when Russia invaded Ukraine, cutting global supplies. |
| The conflict also reduced the amount of grain for sale, pushing up food prices. | The conflict also reduced the amount of grain for sale, pushing up food prices. |
| Inflation soared to 11.1% in October 2022, the highest rate for 40 years. | Inflation soared to 11.1% in October 2022, the highest rate for 40 years. |
| The rate has fallen significantly since then, but lower inflation doesn't mean prices are falling - just that they are rising less quickly. | The rate has fallen significantly since then, but lower inflation doesn't mean prices are falling - just that they are rising less quickly. |
| Most things still cost more than they did before. | |
| One reason that inflation has remained high in the UK is that worker shortages have made it more expensive to find and keep staff. | One reason that inflation has remained high in the UK is that worker shortages have made it more expensive to find and keep staff. |
| Why inflation is worse for some people than others | Why inflation is worse for some people than others |
| How much are prices rising for you? Try our calculator | How much are prices rising for you? Try our calculator |
| Why does putting up interest rates help to lower inflation? | |
| The Bank of England target is to keep inflation at 2%. | |
| While inflation remained several times that level, the Bank increased interest rates to 5.25%. | While inflation remained several times that level, the Bank increased interest rates to 5.25%. |
| The theory is that if you make borrowing more expensive, people have less money to spend. They may also choose to save more as saving rates increase. | |
| In turn, this reduces demand for goods and slows price rises. | In turn, this reduces demand for goods and slows price rises. |
| But it's a balancing act - increasing borrowing costs risks harming the economy. | But it's a balancing act - increasing borrowing costs risks harming the economy. |
| For example, homeowners face higher mortgage repayments, which can outweigh better savings deals. | For example, homeowners face higher mortgage repayments, which can outweigh better savings deals. |
| Businesses also borrow less, making them less likely to create jobs. Some may cut staff and reduce investment. | Businesses also borrow less, making them less likely to create jobs. Some may cut staff and reduce investment. |
| Can government claim credit for a fall in inflation? | Can government claim credit for a fall in inflation? |
| When will inflation and interest rates go down? | When will inflation and interest rates go down? |
| The Bank of England says it expects inflation to keep falling in 2024, and has suggested it is edging towards cutting interest rates. | The Bank of England says it expects inflation to keep falling in 2024, and has suggested it is edging towards cutting interest rates. |
| In March the Bank held rates at 5.25% for the fifth time in a row. | |
| However, governor Andrew Bailey said he had seen "encouraging signs" that inflation was coming down. | |
| But he emphasised that the Bank had to be sure it would fall back to its 2% target and stay there. | |
| "We're not yet at the point where we can cut interest rates, but things are moving in the right direction," he added. | |
| Many economists are predicting a cut in early summer. | |
| What are UK interest rates and when will they fall? | What are UK interest rates and when will they fall? |
| What a falling inflation rate means for your finances | What a falling inflation rate means for your finances |
| Are wages keeping up with inflation? | Are wages keeping up with inflation? |
| Wage growth is growing faster than rising prices, official figures show, but pay is not increasing as quickly as it was. | Wage growth is growing faster than rising prices, official figures show, but pay is not increasing as quickly as it was. |
| Pay, excluding bonuses, grew by 6.2% in the last three months of 2023, compared with the same period a year before. After taking inflation into account, it means pay went up by 1.9%. | |
| Several industries, including rail, healthcare and education, have gone on strike over pay. | Several industries, including rail, healthcare and education, have gone on strike over pay. |
| The government has argued that big pay rises could push inflation higher because companies might increase prices as a result. | The government has argued that big pay rises could push inflation higher because companies might increase prices as a result. |
| Five tips when asking for a pay rise | Five tips when asking for a pay rise |
| How to get a job: Six expert tips for finding work | How to get a job: Six expert tips for finding work |
| What is happening to inflation and interest rates in Europe and the US? | What is happening to inflation and interest rates in Europe and the US? |
| Many other countries have also been experiencing a cost-of-living squeeze and higher interest rates. | Many other countries have also been experiencing a cost-of-living squeeze and higher interest rates. |
| But even at 3.4%, UK inflation remains higher than in the EU and US. | But even at 3.4%, UK inflation remains higher than in the EU and US. |
| The annual inflation rate for countries using the euro was 2.6% in February, down from 2.8% in January. | The annual inflation rate for countries using the euro was 2.6% in February, down from 2.8% in January. |
| In the US, inflation hit 3.2% in February, up very slightly from 3.1% in January. | In the US, inflation hit 3.2% in February, up very slightly from 3.1% in January. |
| Why is inflation higher in UK than other countries? | Why is inflation higher in UK than other countries? |
| The European Central Bank raised its key interest rate to a record high 4% in September. It remains there. | |
| At its March meeting, the US central bank again kept its key interest rate at between 5.25% and 5.5%. | |
| Related Topics | Related Topics |
| Economics | Economics |
| Personal finance | Personal finance |
| Inflation | Inflation |
| Cost of Living | Cost of Living |
| UK economy | UK economy |
| Bank of England | Bank of England |
| Pay | Pay |