The Consumer Price Index (CPI) rose by 3.4% in February – signalling a significant ease in the year-on-year rise, which had come in at 4.0% in the previous month's annual measure. February marked the lowest rise since autumn 2021.

The figure factors in what the ONS calls the owner occupiers' housing costs (CPIH) which rose by 3.8% in the 12 months to February 2024, down from 4.2% in January and down from a recent peak of 9.6% in October 2022.

Welcoming the news, Jeremy Hunt, the Chancellor, said the date was an indication that inflation is falling "decisively" in accordance with the government's plans.

Mr Hunt said: "This sets the scene for better economic conditions, which could allow further progress on our ambition to boost growth and make work pay by bringing down national insurance as we work towards abolishing the double tax on work - but only if we can do so without increasing borrowing or cutting funding for public services."

In its analysis, the ONS said that the October 2022 rate had been the highest in over 40 years (the CPIH Accredited Official Statistic series having begun in January 2006), while the annual rate in February 2024 was the lowest since October 2021 when it was also 3.8%.

An ONS spokesman said: "The easing in the annual rate between January and February 2024 was a result of prices rising by 0.6% on the month, compared with a rise of 1.0% a year earlier."

The easing in the annual rate between January and February 2024 was, they added, a result of prices rising by 0.6% on the month compared with a rise of 1.1% a year earlier.

For perspective on what's at play in the new figure, ONS chief economist Grant Fitzner said: "Food prices were the main driver of the fall, with prices almost unchanged this year compared to a large rise last year, while restaurant and cafe prices also slowed."

Overall prices for electricity, gas and other fuels fell by 18.2% year on year, he added, compared with a fall of 18.4% in January.

Meanwhile the average price of petrol rose by 2.3 pence per litre between January and February 2024 to stand at 142.2 pence per litre, down from 148.0p a year ago. This marked a 6.5% fall in the last 12 months.

But in its response, the British Chambers of Commerce warned prices have simply stabilised at a "much higher level".

David Bharier, BCC Head of Research, said:  "Today's easing of the CPI rate to 3.4% will give businesses and consumers some sense of relief. At 4.5%, core inflation has also slowed, and the producer price index for input costs remains negative at -2.7%.

"These positive trends were to be expected as many of the key drivers have begun to fall away.

But he warned: "We are now two years into this inflation shock and prices have simply stabilised at a much higher level. Uncertainty for businesses remains high. Further rises in the minimum wage are likely to impact pay differentials, and the ongoing crisis in Gaza, alongside shipping disruption in the Red Sea, is a source of great instability.

"It is also a concern that the owner occupiers' housing (OOH) component of CPIH has risen by 6.0%, indicating the adverse impact of higher interest rates. This measure is likely to be exacerbated by further council tax rises."

Mr Bharier added that the fundamental issues for SMEs still remain: "Skills shortages, a lack of infrastructure investment, and trade barriers, particularly with the EU, which all feed into GDP growth expectations of less than 1% for the coming years."

Equal caution over Brexit continuing to bite was sounded from the city.

Michael Lynch, partner at city law firm DMH Stallard and an insolvency and business restructuring specialist told Punchline-Gloucester.com: "Even with the news today that inflation has fallen to its lowest rate since September 2021, a proportion of the retail sector, the mid-market, which faced the covid hiatus and is now suffering the Brexit reality, are facing up to the facts of being overleveraged and/or entering into strategic partnerships that have not worked.

"At a point in time, the options become limited."

Mr Lynch cited the high street brand Ted Baker's administration and emergence under new owners with new leadership as a positive development, with potential to save jobs. It was announced on Tuesday that Ted Baker, which has a standalone presence in Gloucester Quays, is appointing administrators with the potential loss of up to 1,000 staff.

Elsewhere in the city, investors are today reported to be betting that inflation will tumble further as we head into 2024, the downward trend being nudged by both the falling price of natural gas since 2023 and a flattening of the rise in food prices.

In the opposition's response to the new data, Rachel Reeves, Labour's Shadow Chancellor, said that despite the new figure, "the tax burden is the highest it has been in 70 years and mortgage payments are going up".

As for the bottom-line implications for SMEs and sole traders, the Federation of Small Businesses was quick to welcome the change – with caveats.

Tina McKenzie, FBS Policy Chair, said: "Any easing in inflation brings relief to small firms, and today's reported drop is a step towards reducing interest rates by the summer.

"However, we mustn't discount the cumulative damage that has been done to small businesses' margins and cash reserves by inflation having been so high for so long.

"With the fall reported today driven largely by falling food prices for consumers, the hope is that this will ease some of the pressures on household budgets, to the eventual benefit of small firms in consumer-facing sectors."

FSB analysis showed that small firms ended last year with a decrease in confidence levels, indicating that this first quarter would be tricky in many respects. But it said that many of the key economic indicators published so far have been a slight improvement compared with 2023, "giving rise to a feeling of cautious optimism".

Ms McKenzie added: "In order for any optimism to be nurtured, the promising start signalled by the increase in the VAT threshold to £90,000, the announcement on apprenticeships from the start of the week, and the business rate relief for small firms in the retail, hospitality and leisure sectors should be built on.

"What unites these growth-promoting measures is that they are targeted where they will have the most impact: on small firms, who are the ones with the potential to expand and kick the economic recovery into a higher gear.

"Measures to ensure employment levels are maintained and improved are also needed. Wage inflation has eroded the Employment Allowance's relative value, underlining the need for it to be uprated, especially with the impending rise in the National Living Wage. This will help small employers keep people in work, and to grow their workforce.

"Politicians and policymakers should remember that small firms have been the driving force behind our recovery from past recessions, and this time around it'll be no different, if they are given the right conditions to start up, scale up, and prosper."