The Budget: Inflation fall provides lift

Published on Tuesday 23 March 2010 21:28

CHANCELLOR Alistair Darling gained a pre-Budget boost yesterday after a sharper-than-expected fall in inflation in February.

Official figures showed a fall in the benchmark Consumer Prices Index to 3 per cent from a 14-month high of 3.5 per cent in January as prices rose by less than they did a year ago.

The fall will also soothe concerns over the recent inflation spike lingering longer than expected and growing pressure at the Bank of England for interest rate hikes.

Many experts now forecast borrowing costs to stay on hold at their current 0.5 per cent record low until the end of the year, helping to shore up a fragile economic recovery.

Jonathan Loynes, chief European economist at Capital Economics, said price pressures in the UK economy "remain encouragingly subdued". David Kern, chief economist at the British Chambers of Commerce, said: "The economy remains weak, businesses are still facing serious pressures, and it would be wrong for the Monetary Policy Committee to contemplate early interest rate rises."

The pound dropped below 1.50 against the US dollar soon after the figures were released as markets weighed up the still-distant prospect of rising rates.

Elsewhere, mortgage lending by the major banks remained depressed during February, though this was anticipated following the steep fall in approvals the previous month.

Net mortgage lending – which strips out redemptions and repayments – totalled 2.8 billion during the month, which was up from January's 2.6bn, but down on the recent six-month average of 3bn.