IoD press release Lower inflation gives no respite for the Chancellor
Commenting on today’s data from the Office for National Statistics, that showed the annual rate of CPI inflation weakening to 2.8% in February 2025 from 3.0% in January, Anna Leach, Chief Economist at the Institute of Directors, said:
“Inflation has come in a little lower than expected, with services inflation holding steady at 5.0% while goods inflation dropped to 0.8%. Clothing and footwear exerted the only dampening pressure on inflation as prices fell for the first time since October 2021.
“Inflation is expected to be fairly steady for a further month, before lifting sharply with the OfGem price cap. But gas prices are already 25% below their February peak which, if sustained, should drive down the energy price contribution to inflation later in the year. And a soft economy may also apply further downward pressure. Other pipeline inflationary pressures remain elevated however, particularly from wage growth, which has yet to come down substantively, and from the passthrough of costs from the Autumn Budget. Meanwhile, the outlook for tariffs will continue to inject uncertainty into global pricing patterns for the foreseeable future.
“With the balance of inflationary pressures pretty stable at an elevated level in the near-term, there remains limited space for interest rates to fall this year. For the Chancellor, debt interest payments will continue to constrain the public purse, meaning every other penny of government spending will need to work that bit harder to deliver savings and productivity improvements, both for the public sector and the broader economy.”
