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Inflation fell to 3.4% in February, down from 4% in January and edging closer to the Bank’s target of 2%.
The drop means the cost of living is rising at its slowest pace since September 2021, when it stood at 3.1%.
Inflation, the rate at which prices rise over time, has been gradually falling since it hit 11.1% in October 2022, its highest rate for 40 years.
The Office for National Statistics (ONS) said slowing food price inflation was the main reason for the drop.
However, prices are not yet falling they are just rising less quickly than they were previously.
While food and non-alcoholic beverages, restaurants and cafes saw the biggest slowdown in price rises, alcohol and tobacco, clothing and footwear also experienced a slowdown, according to the new ONS figures.
However, housing and household services costs and motor fuel bucked the downward trend and continued their rise in price increases.
Indeed the rise in mortgages and rental costs shows no sign of easing. According to Moneyfacts, on Wednesday the average rate on a 2-year fixed mortgage rate was 5.80%, up from 5.55% in January, while the cost of new lets in towns close to cities rose by more than a third.
Grant Fitzner, chief economist at the ONS, said one of the reasons for the bigger than expected drop in last month’s figure was the fall in food price inflation which had come down “quite a bit” from 6.9% to 5%.
“That’s 11 consecutive monthly falls… in fact we haven’t really seen much change in food prices for the last nine months, they’ve been almost flat,” he said.
“These falls were only partially offset by price rises at the pump and a further increase in rental costs.
“But the general trend continues to be lower,” Mr Fitzner said.
Overall prices were “still higher than they were a year or two years ago, [but] the rate of inflation has come down markedly,” Mr Fitzner added.
However, speculation about an impact on prices as a result of disruption in the Red Sea had not materialised, mostly because the rate of sterling had increased and the UK’s ability to pay for imports had improved, he said.
Reacting to the fall in food price inflation Karen Betts, chief executive of the Food and Drink Federation said it reflected efforts by manufacturers to keep prices down for shoppers.
But she warned there were underlying factors “acting against this”, such as the recent poor weather across the UK which was affecting agriculture, and continued rising labour costs.
Fritz Ali Khan owns Indian street food business Payal Events in Manchester, but with less disposable income “fewer people are coming out to spend on places like this,” he said.
Staff wages had increased because of the cost of living and with the rising cost of ingredients, running the business had become a challenge, he told the BBC.
“Our commercial butcher told us the lamb will go up £1 a kilo… the conversation was are we okay with that, not can we do something. So for the next month we kind of have to absorb that.”
Over in Crewe, Shaine Ashley Tench runs A Star Taxis. He recently received a quote to insure his fleet which he said he “could not believe”.
“It just knocked me back so much,” he said. “We can’t just put that onto the customers’ price, because we need to be an affordable, reliable taxi company in this area. And if we put our prices up then it goes against what we believe in.”
How can I save money on my food shop?
Look at your cupboards so you know what you have already
Head to the reduced section first to see if it has anything you need
Buy things close to their best before date which will be cheaper and use your freezer
Read more tips here
Most economists had predicted the drop in inflation and said it would further expectations that the Bank will cut interest rates later in the year.
The figure comes ahead of its latest interest rate decision on Thursday, which is expected to see rates held at 5.25%.
Chancellor Jeremy Hunt said people would “heave a sigh of relief” at the inflation figures but insisted it was “far too early to know” whether the government would be in a position to cut taxes before the general election.
However, he added: “As inflation gets closer to its target that opens the door for the Bank of England to consider bringing down interest rates, that brings down mortgage rates, that makes a very big difference,” he added.
But Labour said after 14 years under the Conservatives “working people are worse off”.
“Prices are still high, the tax burden is the highest it has been in 70 years and mortgage payments are going up,” shadow chancellor Rachel Reeves said.
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