Surprise February Inflation Fall Helps Reeves? We think not ...

Over the last couple of months, the Consumer Prices Index (CPI) measure of inflation has been bouncing up and down in a confused manner, as are governments, investors, business owners and consumers.

• December 2024 – CPI fell 0.1% to 2.5% pa.
• January 2025 – CPI climbed a massive 0.5% to 3.0% pa.
• February 2025 (released this morning by the Office for National Statistics ONS) – CPI has fallen again by 0.2% to 2.8% pa.

The main contributors to the fall were:

• Clothing and footwear – down 0.14% in February.
• Recreation and culture - down 0.06% in February.
• Housing and household services - down 0.03% in February.
• Furniture and households - down 0.02% in February.

Upward pressure is still there with the main contributors being:

• Communications – up 0.03% in February.
• Alcohol and tobacco – up 0.03% in February.
• Miscellaneous goods and services – up 0.02% in February.
• Transport – up 0.01% in February.
• Restaurants and hotels – up 0.01% in February.

RPI Also Down by 0.2%

The old measure of inflation RPI, an arithmetical mean of the average prices of a basket of household spending (rather than the geometric mean for CPI) and still our preferred measure of real inflation, fell 0.2% to 3.4% pa and is now back to October 2024 figures but the picture is much worse now than it was before Reeves’ first budget on 30^th October 2024.

Comment - Employers National Insurance Is Going to Hurt

We suspect worse is to come as minimum wage increases, employers’ national insurance increases to 15% and a reduction in the threshold at which employers NIC starts to be paid from £9,100 pa to just £5,000 pa, meaning even just employers will get caught for NIC for part-time employees earning over £96.15 per week.  That’s

• Part-time workers aged 21 and over on National Living Wage of £12.21 per hour working just 8 hours per week.
• Part-time workers aged 18-20 on National Minimum Wage of £10.00 per hour working just 10 hours per week.
• Part-time workers aged below 18 on National Minimum Wage of £7.00 per hour working just 14 hours per week.

Businesses are already reacting to this threat by

• Putting prices up.
• Redundancies.
• Closing shops, branches and offices or even moving production overseas.
• Cutting back and even stopping recruitment.

We suspect inflation is going to tick up again over the coming months and there will be even more pressure on the government as unemployment rises.  No wonder the benefits system is touted to be under attack in the Spring Statement (Mini-Budget) later today by Chancellor Rachel Reeves.

Will Mrs Reeves break her fiscal rules and borrow more for public spending and defence?  We believe she needs to be honest with the country about the need to ‘beef up’ defence dramatically as well as the NHS.  Cutbacks in public spending and the civil service are not going to achieve this. 

• We need a simple but effective increase in income taxes across the board by say 2% for all. 
• State pension ‘triple lock’ should go.
• Benefit increases should be limited.
• It should be the whole population that ‘tightens its belt’ and not just employers.

The Chancellor and the Prime Minister need to honest and even test ‘public sentiment’ that any income tax increase, whilst against their manifesto promise, is a necessary action for all our safety, be it to protect benefits for the disabled, public health and militarily.  They should stop ‘vote chasing’ and be honest with the public, they may get more respect, particularly in that they should also vote for all MPs not to get their massive £2,500 pa pay increase this year when everyone else is facing a tough year.

Key dates for us all:

• Next ONS inflation report 16 April 2025.
• Next Bank of England MPC interest rate decision 8 May 2025.