Inflation rate in UK surprises again with March figure of over 10%
- The consumer price index rose 10.1% annually, according to the Office for National Statistics, above a consensus estimate of 9.8% in a Reuters poll of economists.
- This follows an unexpected jump to 10.4% by February, which broke three straight months of decline since October’s 41-year high of 11.1%.
City workers in Paternoster Square, where the headquarters of the London Stock Exchange are based, in the City of London, Britain, Thursday, March 2, 2023.
Bloomberg | Bloomberg | Getty Images
Inflation in the UK unexpectedly stayed in double digits in March as households continued to struggle with skyrocketing food and energy bills.
The consumer price index rose 10.1% annually, according to the Office for National Statistics, above a consensus estimate of 9.8% in a Reuters poll of economists.
This is a slight decline from the unexpected jump to 10.4% in February, which broke three straight months of decline since October’s 41-year high of 11.1%.
On a monthly basis, CPI inflation was 0.8%, above a Reuters consensus of 0.5% and down from 1.1% in February.
The consumer price index including owner occupiers’ housing costs (CPIH) rose by 8.9% in the 12 months to March 2023, down slightly from 9.2% in February but well above expectations.
Core CPIH, which excludes volatile food, energy, alcohol and tobacco prices, rose 5.7% over the 12 months, unchanged from February’s annual rise – which will be a concern for the Bank of England.
“The biggest upward contributions to the annual CPIH inflation rate in March 2023 came from housing and household services (mainly from electricity, gas and other fuels), and food and non-alcoholic beverages,” the ONS said in its Wednesday report.
As British households continue to struggle with high food and energy bills, workers across a range of sectors have launched mass strike action in recent months amid disputes over pay and conditions.
Britain’s Chancellor of the Exchequer Jeremy Hunt said Wednesday’s figures confirm why the government must continue its efforts to bring down inflation.
“We are on track to do this – the OBR (Office for Budget Responsibility) forecast we will halve inflation this year – and we will continue to support people with living costs support worth an average of £3,300 per household over this year and last year, funded through windfall taxes on energy profits,” Hunt said in a statement.
The Bank of England’s tough task
The Bank of England raised interest rates last month by 25 basis points to 4.25%, and traders are pricing in a 72% probability of a further quarter-point hike at the May 11 monetary policy committee meeting.
Economists expect the slight decline in the March headline to be followed by a bigger fall in April, due to the ground effects of a jump in energy prices in April 2022, when the UK’s energy regulator raised the price cap by 54%.
“While core inflation is likely to prove more stubborn, pressures on consumer demand from rising taxes and the lagged effect of raising interest rates should put it on course for a firm downward path by the autumn,” said Suren Thiru, chief economist at ICAEW ( Institute of Chartered Accountants in England and Wales).
The UK economy was flat in February, as widespread industrial action and the persistent cost-of-living crisis hampered activity, and Thiru suggested the MPC may be more divided on whether to raise interest rates further in May, as “concerns grow over a flatlining economy.”
Hugh Gimber, global market strategist at JPMorgan Asset Management, said that while headline inflation is again moving in the right direction, the central bank is “still a long way from being comfortable that price pressures are under control.”
“Yesterday’s labor market data provided a strong demonstration of how tight labor markets fuel strong wage growth. The flow-through to today’s inflation print was evident, given the strength in wage-sensitive service sectors,” Gimber said.
Unemployment in Britain rose to 3.8% in the three months to the end of February, new data showed on Tuesday, while the level of economic inactivity fell and employment also rose by more than expected.
“For the BoE, while there are signs of an easing of labor market tightness, particularly in the continued fall in vacancies, the labor market remains tight overall,” said Victoria Clarke, UK chief economist at Santander CIB.
“The latest report does not provide the reassurance that the MPC is likely to look for wage growth to moderate down towards prices consistent with the BoE inflation target.”
While stabilizing energy prices will help moderate inflation in the second half of the year, JPMorgan’s Gimber said it is “increasingly clear” that a longer period of depressed economic growth will be needed to moderate core price pressures.
“Another 25 basis point rate hike appears highly likely in May, and the Bank must be ready to take further action unless economic data shows more definitive signs of cooling,” he said.
“Policymakers have come a long way in the fight against inflation. Going forward, the biggest mistake will be to claim victory too soon.”
