UK inflation rate: How quickly are prices rising?
- Published
Prices in the UK rose by 2.8% in the 12 months to February, less than in the previous month but still above the Bank of England's target.
The Bank moves interest rates up and down to try to keep inflation at 2%, and has cut three times since August 2024.
When it announced the last cut in February, the Bank warned that it expected inflation to rise again in 2025.
What is inflation?
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%.
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).
This virtual "basket of goods" is regularly updated to reflect shopping trends, with virtual reality headsets and yoga mats added in 2025, and local newspaper adverts removed.
The ONS monitors price changes over the previous 12 months to calculate inflation.
The main inflation measure is called the Consumer Prices Index (CPI), external, and the latest figure is published every month.
CPI was 2.8% in the year to February 2025, down from 3% in the 12 months to January.
Analysts had not expected the drop, which the ONS said was driven by a fall in the cost of women's clothing.
Why are prices still rising?
Inflation has fallen significantly since hitting 11.1% in October 2022, which was the highest rate for 40 years.
However, that doesn't mean prices are falling - just that they are rising less quickly.
Inflation soared in 2022 because oil and gas were in greater demand after the Covid pandemic, and energy prices surged again when Russia invaded Ukraine.
It then remained well above the 2% target partly because of higher food prices.
Why does putting up interest rates help to lower inflation?
When inflation was well above its 2% target, the Bank of England increased interest rates to 5.25%, a 16-year high.
The idea is that if you make borrowing more expensive, people have less money to spend. People may also be encouraged to save more.
In turn, this reduces demand for goods and slows price rises.
But it is a balancing act - increasing borrowing costs risks harming the economy.
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.
What is happening to UK interest rates?
The Bank of England cut rates to 5% in August 2024, to 4.75% in November and again to 4.5% in February.
In February, governor Andrew Bailey warned that the Bank's approach to future cuts would be "gradual and careful" because of increased economic uncertainty.
The Bank expects inflation to spike at 3.7% between July and September 2025 due to higher energy prices, water bills and bus fares.
It then thinks inflation will drop back towards the 2% target towards the end of 2027, having previously predicted this would happen earlier in the year.
The Bank also considers other measures, external, such as "core inflation" when deciding whether and how to change rates.
Core inflation doesn't include food or energy prices because they tend to be very volatile, so can be a better indication of longer term trends.
This was 3.7% in January, up from 3.2% in December 2024.
After the October Budget, the Bank predicted that the policies it contained - including an increase in National Insurance Contributions paid by employers - would lift inflation slightly as businesses passed on their increased costs through higher prices from April.
As expected, the Bank held rates at 4.5% at its March meeting, when Mr Bailey warned that "there's a lot of uncertainty at the moment". However, he also said they remained on a "gradually declining path".
On Wednesday 26 March, Chancellor Rachel Reeves will set out the government's plans for the UK economy in the Spring Statement.
Reeves is expected to give details on government spending - including civil service cuts, welfare changes, and the defence budget.
Are wages keeping up with inflation?
The latest official figures, external show that regular pay in Great Britain grew by more than inflation between November 2024 and January 2025.
Average annual growth in pay (excluding bonuses) during the three-month period was 5.9% - the same rate as between October and December 2024.
After taking CPI into account, wages grew by 3.2% between November and January, down from 3.4% in the previous quarter.
Private sector earnings increased by more than public sector pay.
What is happening to inflation and interest rates in Europe and the US?
The US and EU countries have also been trying to limit price increases.
The inflation rate for countries using the euro was 2.3% in February 2025, down from 2.5% in January.
In June 2024, the European Central Bank (ECB) cut its main interest rate from an all-time high of 4% to 3.75%, the first fall in five years. It has since cut rates a further five times, taking its key rate to 2.5%.
Inflation in the US fell to 2.8% in February, which was down from 3% the previous month but still above the US central bank's 2% target.
After a string of cuts in the latter part of 2024, at its March meeting the US Federal Reserve left its key interest rate unchanged in a range of 4.25% to 4.5%.
The Fed also cut its growth forecast as it warned that President Donald Trump's new trade tariffs were "clearly" driving up prices.