The UK inflation print for February offered a positive surprise this morning, with the year-on-year rate coming to 3.4% while analysts were expecting 3.5%.
It marks the lowest rate of inflation seen in the UK for 30 months, down from the 4% year-on-year rate in January.
“Food prices were the main driver of the fall, with prices almost unchanged this year compared with a large rise last year, while restaurant and café price rises also slowed,” said Office of National Statistics chief economist Grant Fitzner.
“These falls were only partially offset by price rises at the pump and a further increase in rental costs.”
Core inflation, which strips out volatile food and energy prices, was 4.5% in February, also besting expectations of 4.6%.
George Lagarias, chief economist at Mazars, said: “Inflation fell more than expected, across most categories. An economy in technical recession is more than balancing out building price pressures from external supply chains.
“While a pickup in producer output prices may give [Bank of England Governor] Andrew Bailey some pause, we believe that the overall figure brings the first rate cut closer.
“It is becoming obvious that the UK, much like Europe, is following a much shallower path in terms of growth and inflation than the US.
“The Bank of England, like the ECB, may not have the luxury to wait for the Fed to make the first move in the rate cut cycle, but rather choose to lead this dance themselves."
Henk Potts, market strategist at Barclays Private Bank, said it "could pave the way for the start of the interest rate cutting cycle in June".