Rachel Reeves blamed “global uncertainty” as she announced swingeing cuts to welfare and other public spending designed to plug a fiscal hole caused by soaring borrowing costs and sluggish economic growth.

The chancellor told the Commons that the UK’s growth forecasts for this year had been halved from 2% to 1% by the Treasury watchdog, which concluded that the chancellor would have missed her goal of balancing the books if she did not act.

Striking a defiant tone, Reeves set out measures in her spring statement she said would turn a predicted £4.1bn hole in the public finances back into a £9.9bn surplus within five years. This would restore “in full” the headroom against her self-imposed fiscal rules, she said.

In a pointed message to her cabinet colleagues and Labour backbenchers who have privately argued for the fiscal rules to be revisited, Reeves said they were “non-negotiable” and “an embodiment of this government’s unwavering commitment to bring stability to our economy”.

She suggested that abandoning those fiscal rules would be an irresponsible move akin to Liz Truss’s disastrous mini-budget.

The chancellor said the cuts she announced would be offset by billions of pounds in long-term investment to grow the economy, with a particular focus on the building of millions of new homes and supporting higher spending on defence.

It’s nearly time for Rachel Reeves to deliver the Spring Statement, with cuts to benefits and lower growth forecasts both expected.

We’re live-blogging the action here:

The British public’s expectations for inflation over the longer term have risen this month to their highest since October 2022, new data shows.

A Citi/YouGov survey shows that the public’s longer-term inflation expectations have risen to 4.2% in March, from 3.9% in February. That’s the highest since the recent peak of inflation, when surging energy costs were driving up the cost of living.

Year-ahead inflation expectations rose to their highest since October 2023 at 4.0%, up from 3.9%.

Citi economists Callum McLaren-Stewart and Michel Nies explain:

“For the (Bank of England) MPC, this survey will warrant continued caution with quarterly cuts the likely outcome for now.”

Today’s inflation data is consistent with the Bank of England cutting by a further 25bps at May’s meeting, says Gabriella Dickens, G7 economist at AXA Investment Manager.

Dickens points out, though, that we will see another CPI print (for March) before then.

She tells clients:

CPI inflation will tick up over the coming months, peaking at around 3.5% in Q3.

Underlying pressures, though, should continue to ease, albeit with some volatility.

We continue to see three 25bps cuts this year leaving Bank Rate at 3.75% by year end.

We also have a healthcheck on the UK’s property sector, which show that rental growth slowed a little last month.

The Office for National Statistics reports that average UK monthly private rents increased by 8.1%, to £1,326, in the 12 months to February 2025, down from 8.7% in January.

The ONS says:

Average rents increased to £1,381 (8.3%) in England, £785 (8.5%) in Wales, and £998 (5.8%) in Scotland, in the 12 months to February 2025.

That means rents across the UK are rising faster than wages (total pay rose by 5.8% per year in the quarter to January), and around three times faster than the headline CPI inflation measure.

The ONS also reports that UK house prices increased by 4.9% in the 12 months to January, lifting the average price to £269,000, up from 4.6% in the year to December 2024.

It adds:

Average house prices increased to £291,000 (4.8%) in England, £210,000 (6.0%) in Wales, and £187,000 (4.6%) in Scotland, in the 12 months to January 2025.

Responding to the inflation figures, Treasury chief secretary Darren Jones said:

“Our number one mission is kickstarting growth to raise living standards for working people, that is why we are protecting working people’s payslips from higher taxes.

“In a changing world, we’re focused on delivering economic stability to secure people’s finances – freezing fuel duty, protecting the triple lock and increasing the national living wage by £1,400 a year for full-time workers, while going further and faster to drive growth through our plan for change.”

[that growth drive hasn’t got off to a great start this year, though – GDP fell by 0.1% in January].

Shadow chancellor Mel Stride has also responded:

“Inflation remains higher than when Labour took office and the Bank of England expect it to rise over the coming year.

“We left Labour with inflation bang on target. But since their no-strings-attached union payouts, record tax rises and borrowing splurge, they have pushed up the cost of living.

“The Chancellor’s choices have saddled the country with higher inflation for longer. Unless she takes urgent action at her emergency budget today, working families will continue to pay the price.”

[Stride is correct that inflation was 2% in June last year, just before Labour won the election. But CPI had also been over the UK’s target for most of the previous three years – peaking over 11% in October 2022].

Sanjay Raja’s, chief UK economist at Deutsche Bank Research, reckons a May interest rate cut is ‘more likely than not’.

He writes:

Ahead of the Spring Statement, today’s inflation data should give Chancellor Reeves some reprieve. Headline CPI fell back to 2.8% y/y – in line with the BoE’s forecast, and below our own expectations. Core CPI also ticked lower to 3.5% y/y – slipping below consensus expectations (as well as the Bank’s forecasts).

Underneath the hood, however, there remain some concerns around services prices. Indeed, services CPI stayed put at 5% y/y. But underlying measures of services CPI ticked higher in February – underscoring continued price pressures in the services basket. With the NLW hike coming and the increase in employer NICs we think price over the next couple of months will be very important to watch.

Make no mistake, inflation remains on a one-way journey: up. We see headline CPI rising to just under 4% y/y later this year. Inflation expectations have already risen on the back of rising headline prices, energy prices, and food prices. The MPC have taken notice – one reason they opened the door to a potential pause in May.

The good news is that today’s data should provide the BoE a path to continue with its gradual dial down of restrictive policy. We continue to think a May rate cut is more likely than not. And we expect Bank Rate to fall to 3.25% next year as headline pressures recede and wage settlements fall back to a more target-consistent level of 3%.

The odds of a cut to UK interest rates in May have risen this morning, following the drop in inflation from 3% to 2.8% in February.

The money markets are now indicating there is a 55% chance of a cut at the Bank of England’s next monetary policy decision, scheduled for 8 May (which is turning into something of a nail-biter).

Before the inflation data hit the wires, a cut in May was a 45% possibility according to money market pricing, with ‘no change’ at 55%. Those odds have now flipped.

David Morrison, senior market analyst at Trade Nation, says:

“UK inflation, as measured by the CPI, rose 2.8% in the 12 months leading up to February. This was lower than the 2.9% expected. This still remains above the Bank of England’s 2% target but brings some positive news ahead of Rachel Reeve’s spring budget announcement today.

“There was an instant market reaction. Sterling fell against both the US dollar and the euro, while futures on the FTSE 100 stock index shot up. This dip in inflation increases the probability that the Bank of England may consider another rate cut over the coming months.

Although members of the rate setting MPC are unlikely to react to a single piece of data and will want to see the numbers trend lower over time back towards their 2% target.”

[The Bank will also be watching services inflation, which remained unchanged at 5.0% last month]

There was no change to food inflation last month, but retailers are warning that prices will accelerate later this year as rising costs are passed onto consumers.

Food and non-alcoholic beverages inflation was 3.3% in the year to February, matching January’s reading.

Kris Hamer, director of insight of the British Retail Consortium, warns that

“Headline inflation fell marginally in February, driven by marginal drops in housing and household services and clothing and footwear entering deflation. Despite continued cost pressures, namely energy price volatility, food inflation remained unchanged. There was good news as some dairy products such as milk, cheese and eggs all saw price drops on the month. Heavy clothing and footwear discounting continued into February, as fashion sales continue to suffer due to unseasonal weather throughout the month.”

“Retail operates on tight margins and it would be impossible to absorb all £5bn of new costs which hit the industry in April. Food inflation has jumped significantly in recent months and is forecast to hit 5% by the end of 2025 as a result of the costs arising from the Budget. On top of this, retailers are still burdened by an outdated business rates system. It is vital that the government’s reform of business rates doesn’t impose additional costs onto retailers. Reform must leave no shop paying more.”

Sterling is weakening a little, after UK inflation fell by more than expected this morning.

The pound has lost nearly a third of a cent against the US dollar to $1.2915.

Kathleen Brooks, research director at XTB, says:

The market reaction to this data has been minimal, as the focus remains on the Spring Statement later today.

The pound has dropped slightly, but GBP/USD is down less than 20 pips so far on Wednesday, the bond markets are not open, but we think that UK Gilts will also have a mild reaction to this data.

Here’s a chart showing the various price changes that pulled UK inflation down to 2.8% last month.

Core inflation has also slowed in February, despite prices rising steadily in the services sector.

Core CPI (which excludes energy, food, alcohol and tobacco) rose by 3.5% in the 12 months to February 2025, down from 3.7% in the 12 months to January.

The CPI goods annual rate slowed from 1.0% to 0.8%, while the CPI services annual rate was unchanged at 5.0%.

Yael Selfin, chief economist at KPMG UK, says the UK’s central bankers will be cheered by the drop in core CPI:

“The Bank of England will be reassured by today’s fall in underlying inflation, with core inflation easing. We expect underlying inflationary pressures to fall further over the coming months. That will hopefully allow the MPC to look through the expected near-term increase in headline inflation and resume cutting interest rates in the upcoming May meeting.

“Goods inflation fell to 0.8% in February, however ongoing trade frictions could push prices higher. With the potential imposition of tariffs, the cost of imported goods could increase, creating additional cost pressures for both businesses and households.

“Headline inflation eased to 2.8%, driven by a fall in the price of clothing. We expect headline inflation to rise over the coming months, driven by higher energy prices as well as a further increase in food prices.”

Cheaper clothing pulled the UK’s inflation rate down last month.

Overall prices for clothing and footwear fell by 0.6% in the 12 months to February 2025, compared with a rise of 1.8% in the 12 months to January

February’s figure was the first negative annual rate since October 2021, due to more discounting by retailers last month as they tried to shift stock.

The inflation report explains:

The easing in the annual rate was mainly the result of a large downward effect from garments for women, with small downward effects coming from a range of women’s clothing items.

There were additional small downward effects from children’s clothing, and other clothing and clothing accessories, such as hats and women’s scarves.

Newsflash: UK inflation has fallen back to 2.8%, in a boost to Rachel Reeves a few hours before she delivers her spring statement.

The Office for National Statistics said annual inflation as measured by the consumer prices index cooled last month, dropping from 3% in January.

That slightly lowers the cost of living pressure on families, but also means prices are still rising faster than the Bank of England’s 2% target.

On a monthly basis, CPI rose by 0.4% in February 2025, compared with a rise of 0.6% in February 2024.

The largest downward contribution came from clothing, the ONS reports.

Rachel Reeves’s spring statement plans have suffered a last-minute shock.

Britain’s fiscal watchdog, the Office for Budget Responsibility, has rejected the government’s estimate of savings from the changes announced last week, which will force the chancellor to make additional welfare cuts today to keep within her fiscal rules.

Final estimates from the OBR suggested the changes announced by Liz Kendall, the work and pensions secretary, which included tightening the criteria for the personal independence payment (Pip), would not save the £5bn needed to keep within Reeves’s self-imposed borrowing limits.

The chancellor is expected to announce an additional £500m in benefits cuts to make up part of the £1.6bn shortfall, first reported by the Times – with the rest of the gap filled by spending cuts elsewhere.

Here’s the full story:

According to Sky News, Reeves is now expected to announce that universal credit (UC) incapacity benefits for new claimants, which were halved under the original plan, will also be frozen until 2030 rather than rising in line with inflation.

There will also be a small reduction in the basic rate of UC in 2029, with the new measures expected to raise £500m, they add.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

It’s a red letter day in the City of London, as investors await the latest UK inflation report, and then an update on the nation’s finances.

On inflation, due at 7am, economists expect a small slowdown in the rising cost of living. The Consumer Prices Index is forecast to have risen by 2.9% in the year to February, down slightly on January’s 3%.

That would still show prices rising faster than the Bank of England’s 2% target but would at least be a move in the right direction for strugging households.

However, any relief may be short-lived, with many bills set to rise in April. The BoE predicts inflation will hit 3.75% this autumn.

Economist Robert Wood and Elliott Jordan-Doak of Pantheon Macroeconomics predict:

“February should be the calm before the storm of annual price resets, as Government-set price hikes and tax rises drive up headline CPI inflation to 3.5% in April.

A drop in inflation would be welcome news for Chancellor Rachel Reeves, as she prepares to deliver her spring statement.

This was initially intended to be a low-key update, but Reeves is now expected to announce spending cuts for some Government departments, and cuts to sickness and disability benefits which will be very unpopular with Labour MPs.

Reeves is in a bind because government borrowing is running ahead of estimates, while growth has been disappointing.

The Office for Budget Responsibility is expected to lower its growth forecasts, and could halve its growth projection for 2025 from 2% to near 1%.

The rise in UK government borrowing costs since last October’s budget has also eaten into the chancellor’s limited headroom to keep within her debt limits.

Reeves is expected to promise “security and national renewal”, alongside familiar pledges to kickstart economic growth and protect working people. She’ll also announce a further £2.2bn funding increase for defence from April, to keep the country safe.

Reeves is expected to say she is proud of what has been delivered in the nine months since the general election:

“Restoring stability to our public finances; giving the Bank of England the foundation to cut interest rates three times since the General Election; rebuilding our public services with record investment in our NHS and bringing down waiting lists for 5 months in a row; and increasing the National Living Wage to give 3 million people a pay rise from next week.

The agenda

• 7am GMT: UK inflation report for February

• 9.30am GMT: UK house prices and rents report

• 12.30pm GMT: Rachel Reeves delivers the spring statement

• 1pm GMT (approx): Office for Budget Responsibility publishes its latest economic and fiscal outlook