Inflation will average 3.2% this year before falling to 2.1% in 2026 and then 2% from 2027, Rachel Reeves has said.

This is based on a forecast by the Office for Budget Responsibility.

UK inflation fell by more than expected last month, with the price of clothes and shoes declining for the first time in more than three years.

Consumer Prices Index (CPI) inflation was 2.8% in February, down from 3% in January, the Office for National Statistics (ONS) said.

The Bank of England's inflation target is 2% - well above the 3.2% avergae forecasted this year.

But economists have warned that it could reflect a temporary dip before prices are set to rise sharply from April.

February’s inflation rate of 2.8% means that if an item cost £100 a year ago, the same thing would now cost £102.80.

It is below the 3% inflation rate recorded in January, meaning that prices are still increasing, but at a slower rate than they previously were.

Rob Wood, chief UK economist at Pantheon Economics, said “February was the calm before the storm of annual price resets, Government-set price hikes and tax rises”, with inflation predicted to jump to 3.5% in April.

Falling inflation means cost-of-living pressures are easing, which could put more money in some people’s pockets.

Ben Thompson, deputy chief executive of the Mortgage Advice Bureau, said the figures will leave “aspiring and current homeowners breathing a sigh of relief”.

“Coupled with the Bank of England’s decision to hold interest rates last week, this slow and steady approach should give further comfort to prospective buyers,” he said.

Hargreaves Lansdown’s Ms Coles said: “Mortgage rates have been easing off in recent weeks, with the average two-year fixed rate mortgage falling from 5.42% a month ago, to 5.33% (Moneyfacts).

“Inflation coming in slightly lower than expected could strengthen this trend.”

“If you’re looking for a remortgage, this is really positive news, but there’s no getting away from the fact that you’re still going to be remortgaging onto a higher rate than your current one,” she cautioned.

In October 2022, UK inflation peaked at 11.1%, the highest rate in 40 years.