By Joshua Kirby

U.K. inflation cooled a little in February, but remained well above the Bank of England's target, likely keeping policymakers cautious as they mull further rate cuts.

Consumer prices were 2.8% higher in February than a year, earlier compared with a 3.0% annual rate of inflation in January, according to data released Wednesday by the U.K. statistics agency. That slight decrease came in a little faster than economists had expected, and was driven by a shallower rise in energy prices and goods such as clothing and footwear.

"This was only partially offset by small increases, for example from alcoholic drinks," agency economist Grant Fitzner said.

February's annual inflation rate was still the second-fastest since March last year, demonstrating the price pressures still weighing on the British economy. The BOE considers an annual rate of 2% as optimal.

Prices for services, a key focus for rate setters at the BOE, were up by 5.0%, unchanged on the month, while the core rate of inflation-a measure stripping out the more volatile movements in food and energy prices--eased to 3.5%.

The BOE decided last week to hold rates steady, matching the U.S. Federal Reserve's decision a day prior. Policymakers said they would remain "cautious and careful" when considering further rate cuts, having lowered borrowing costs more slowly than their European peers.

"We still think that interest rates are on a gradually declining path," BOE Governor Andrew Bailey said at last week's meeting.

Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby

(END) Dow Jones Newswires

March 26, 2025 03:14 ET (07:14 GMT)

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