UK inflation data paints a picture of the British economy.
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UK inflation rose unexpectedly in February, with food and energy bills continuing to rise, putting further pressure on households.
The consumer price index (CPI) rose 10.4% year-on-year, beating the 9.9% consensus forecast among economists in a Refinitiv poll and up from 10.1% in January. On a monthly basis, CPI inflation came in at 1.1%, beating the forecast of 0.6%.
“The largest upward contributions to the monthly change in both the CPHI and CPI rates came from restaurants and cafes, food and clothing, partially offset by downward contributions from entertainment and cultural goods and services (especially recording media) and motor fuels.” According to the UK Office for National Statistics.
The consumer price index, including owner-occupiers’ housing costs (CPIH), rose 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 consecutive months of low price increases since hitting a 41-year high of 11.1% in October.
British families continue to struggle with high food and energy bills, while workers in many sectors have launched massive strike action in recent months amid disputes over pay and conditions.
The print will cause further headaches for the Bank of England, which has been aggressively raising interest rates in an attempt to control inflation. It will also announce its latest monetary policy decision on Thursday.
Richard Carter, head of fixed interest research at Quilter Cheviot, said the downward path for inflation would not be smooth and suggested the Bank of England could be forced to continue raising the Bank Rate beyond its current steady 4%.
“The BoE’s rhetoric is that inflation will be the primary concern, however, events in the banking sector have been somewhat taken over and the monetary policy committee sees significant divisions over the best way forward,” he said.
The fallout from the failure of Silicon Valley Bank and the emergency 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 UK inflation to fall to 2.9% by the end of 2023 – a forecast Carter said was “overly ambitious” in light of Wednesday’s print.
“It remains to be seen how much the banking crisis will change this forecast, but it feels like a very poor estimate,” he said.