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Consumer price inflation will likely remain more than 1 percentage point above the Bank of England's target in February for a second month running, but a slowdown from January's 14-month high will reinforce hopes it is on a downward trend.
Analysts reckon that lower utility prices -- as well as the statistical effect of last year's sharp rise in food and fuel prices not being repeated this year -- will have helped bring annual inflation down to 3.1 percent last month.
January's spike to 3.5 percent was mainly due to the restoration of value added tax to 17.5 percent after a year-long reduction to 15 percent, while higher oil prices and the impact of the weak pound also contributed.
Some analysts reckon February's data could show some belated pass-through of the VAT hike, giving a chance that the inflation rate could be higher than expected. The top estimate in a Reuters poll of 28 economists was 3.6 percent. But the Bank forecasts that the large degree of slack in the economy will help push inflation below its 2 percent target later this year and keep it there for some time, making policymakers in no hurry to start withdrawing stimulus.
Analysts forecast that retail price inflation in February would hold at 3.7 percent.
The central bank held interest rates at a record low 0.5 percent this month and policymakers have said they may expand their quantitative easing programme if the economy deteriorates.
However, minutes to this month's meeting also showed that some policymakers thought the upside risks to inflation had increased. Tuesday's data will be based on a new basket of goods after the Office for National Statistics carried out its annual rejig of the goods it uses to calculate inflation to reflect changing tastes and new products entering the market.
The ONS is also changing the way it measures mortgage interest payments in the Retail Price Index. It will cease using the standard variable rate and instead use the average effective rate, which includes fixed-rate, discount and tracker mortgages. The ONS said that using the AER rate left the annual rate of RPI 0.1 percentage points higher on average according to a revision of the RPI series between 2005 and 2009.
The RPI measure is used as a basis for most wage deals and for calculating increases in state benefits.
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An above-consensus reading would fuel speculation the Bank may need to start tightening policy sooner than expected, and could put downward pressure on gilts and interest rate futures, while the pound may strengthen.
A lower reading would suggest the economy's weakness is preventing firms from raising prices and could fuel hopes that monetary policy will remain loose, giving a boost to fixed-income assets but hitting the pound.
(Reporting by Fiona Shaikh; Editing by Susan Fenton)
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