UK inflation dips as COVID-19 curbs spark discounting

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Britain’s annual inflation rate eased in February as coronavirus restrictions sparked heavy discounting by retailers, particularly for clothing and footwear, official data showed Wednesday.

The rate, as measured by the UK’s Consumer Prices Index (CPI), slowed to 0.4 percent last month from 0.7 percent in January, the Office for National Statistics said in a statement.

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Clothing and footwear saw the sharpest falls in more than a decade, with prices tumbling 5.6 percent in the year to February -- the largest drop since late 2009.

“A fall in clothing prices helped to ease inflation in February, traditionally a month where we would see these prices rise, but the impact of the pandemic has disrupted standard seasonal patterns,” said ONS statistician Jonathan Athow.

The data surprised markets because expectations had been for a February reading of 0.8 percent.

“The surprise fall in CPI inflation in February was driven by a plunge in clothing inflation,” noted economist Samuel Tombs at Pantheon Macroeconomics.

“The lockdown has left clothing retailers with considerable excess stock to shift,” he added.

Much of the UK re-entered lockdown in early January to curb a winter surge in Covid-19 infections and deaths.

Prime Minister Boris Johnson’s government is now targeting a phased reopening on the back of a successful vaccine drive.

Wednesday’s data came one week after the Bank of England had warned that the inflation rate would approach its 2.0-percent target level in the coming months due to energy price hikes.

“We continue to think that the headline rate of CPI inflation will jump to within a whisker of the 2.0 percent target by May, before climbing a little further towards the end of this year,” said Tombs.

“This pick-up, however, will be driven primarily by a rebound in energy’s contribution to the headline rate in the spring.”

The BoE left record-low interest rates at 0.1 percent last Thursday and forecast economic growth would recover towards pre-Covid levels this year.

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