Inflation is falling faster than it has in 50 years, bringing the Bank of England's 2% target within reach

The latest annual inflation rate fell by the sharpest rate in 50 years, reaching 3.4% in February, down from 4% in the previous month.

The decline was slightly larger than the expected 3.5 percent. And it was also the first decline since November, after inflation unexpectedly rose in December and remained stable in January.

Today's figure is the lowest in two years. The decline was the fastest 12-month decline in inflation since 1978, according to the Resolution Foundation.

The main reason for this was the decline in food inflation, which fell from 6.5% to 5%, marking the eleventh consecutive monthly decline.

This morning's standard data from the Office for National Statistics was the last major release before the Bank of England's interest rate decision tomorrow, due at midday. Policymakers, who are targeting a 2% consumer price index, will be scrutinising the data closely.

The next step in the official base cost of borrowing in the UK is expected to be a cut. Since August last year, rates have been at a 16-year high of 5.25 percent. Expectations for when the cuts will come into effect have been pushed back further, to June or August. That means rates will be at this level for almost a year.

There is little chance of a first cut from the peak this week. The BOE has indicated that it expects the rate to stay high for longer to ensure the fight against inflation is secure after energy costs soared following Vladimir Putin's invasion of Ukraine, triggering the cost-of-living crisis through double-digit inflation that peaked above 11% in October 2022.

City experts at ING predicted that consumer price inflation “will be below 2% from May and for much of 2024.”

James Smith, developed markets economist at the Dutch bank, added: “A lot of this can be explained by food inflation, which is falling rapidly. On a monthly basis, producer prices for food have been either flat or slightly negative for some time and that is having a very clear impact on consumers.

“Annual food inflation … could be below 1% by June.”

Alice Haine of asset manager Bestinvest by Evelyn Partners said: “Of course, most households would welcome a rate cut tomorrow, but with the first rate cut not expected until the summer, all eyes are on tomorrow's statement from the central bank to see if there are any indications of earlier action,” adding:

“For now, however, the BoE will likely want more solid evidence that inflationary pressures are actually easing before it initiates a rate cut. That means borrowing costs could remain high for longer – not the news households want to hear as they struggle to balance their budgets after a difficult few years.”

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In recent weeks, the cost of mortgage loans for home buyers has risen again as the City's forecasts for the timing of interest rate cuts by the Monetary Policy Committee have been scaled back. So-called “swap rates” in wholesale financial markets, which directly affect the cost of mortgage loans to borrowers, have risen slightly again and typical five-year fixed-rate mortgages have again exceeded the 5% mark.

Markets in the City are putting the probability of a rate cut this week at just 3%, with traders also betting that the first rate cut will come in the summer, either in June or August.