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UK inflation breaks 3-month slump with surprise rise to 10.4%




  • British households continue to struggle with high food and energy bills, while workers in a number of sectors have launched mass strike action in recent months.
  • The Bank of England has raised interest rates aggressively in a bid to curb inflation and will announce its latest monetary policy decision on Thursday.

UK inflation data paints a picture of the UK economy.

Bloomberg / Contributor / Getty Images

UK inflation rose unexpectedly in February as food and energy bills continued to rise, putting further pressure on households.

The consumer price index (CPI) increased by 10.4% annually, above the 9.9% consensus forecast among economists in a Refinitiv survey and up from 10.1% in January. On a monthly basis, CPI growth was 1.1%, above the forecast of 0.6%.

“The largest upward contributions to the monthly change in both the CPIH and CPI came from restaurants and cafes, food and clothing, partly offset by downward contributions from leisure and cultural goods and services (especially recording media), and motor fuel,” the UK Office of national statistics.

The consumer price index including owner occupiers’ housing costs (CPIH) rose by 9.2% in the 12 months to February 2023, up from 8.8% in January.

The surprise increase in February marked a break from three straight months of slowing price gains since the 41-year high of 11.1% reached in October.

British households continue to struggle with high food and energy bills, while workers in a range of sectors have launched mass strike action in recent months amid disputes over pay and conditions.

Sterling was up 0.4% against the dollar early Wednesday.

Bank of England “on a knife edge”

The pressure will pose a further headache for the Bank of England, which has raised interest rates aggressively in a bid to curb inflation and will announce its latest monetary policy decision on Thursday.

Richard Carter, head of fixed rate research at Quilter Cheviot, said the downward path for inflation would not be smooth and suggested the Bank of England may be forced to keep raising Bank Rate beyond the current level of 4%.

“The rhetoric from the BoE will continue to be that inflation is the primary concern, but events in the banking sector have taken a bit of a toll and the Monetary Policy Committee has seen significant divisions over the best way forward,” he said.

The fallout from the failure of Silicon Valley Bank and the bailout of Credit Suisse has added another layer of complexity to the task facing central bankers around the world.

Last week, the independent Office for Budget Responsibility forecast that UK inflation would plunge to 2.9% by the end of 2023 – a forecast Mr Carter said was “increasingly ambitious” in light of Wednesday’s pressure.

“How much the banking crisis will have changed this prediction remains to be seen, but it feels like a very strong estimate,” he said.

PwC economist Jake Finney said the reading was the first setback in the Bank of England’s mission since inflation began to fall in November, highlighting that inflationary pressures are beginning to diverge.

“Food inflation continues to hit new highs and restaurant and cafe prices increased further, while on the other hand, transport inflation continued to decline as petrol and diesel prices fell further,” he said.

Despite the bump in the road, PwC still sees inflation falling through most of 2023 to finish much closer to the bank’s 2% target. Still, Finney noted that “the standard of living squeeze is not over yet.”

The OBR expects households’ real disposable income per person, a measure of living standards, to fall by a cumulative 5.7% in 2022/23 and 2023/24.

“The Bank of England’s decision on Thursday remains on a knife’s edge. The latest inflation data is a setback, but the Bank of England has made it clear that it will not be affected by monthly changes in data points,” Finney said.

“We expect to see a final 25bp hike from the Bank of England. However, further volatility in financial markets could turn sentiment towards a no-change decision.”



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