UK inflation data paints a picture of the UK economy.
UK inflation unexpectedly spiked in February as food and utility bills continued to rise, putting further pressure on households.
The consumer price index (CPI) rose 10.4% annually, above the consensus forecast of 9.9% among economists in a Refinitiv poll and up from 10.1% in January. On a monthly basis, CPI inflation was 1.1%, beating the forecast of 0.6%.
“The largest upward contributions to the monthly change in both CPIH and CPI rates came from restaurants and cafes, food and clothing, partially offset by downward contributions from recreational and cultural goods and services (particularly recording media) and motor fuels,” according to the UK Office for National Statistics.
The Consumer Price Index including housing costs (CPIH) increased 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 consecutive months of slowing price increases since the 41-year high of 11.1% reached in October.
UK households continue to struggle with high food and energy bills, while workers in several sectors have launched massive strikes in recent months over disputes over wages and working conditions.
The pressure will add further headaches to the Bank of England, which has aggressively raised interest rates to contain inflation and will announce its final monetary policy decision on Thursday.
Richard Carter, head of fixed rate research at Quilter Cheviot, said the downward path for inflation will not be smooth, suggesting that the Bank of England could be forced to raise bank rates beyond the current 4%.
“The rhetoric from the BoE will continue that inflation is the main concern, but events in the banking sector have taken over somewhat and the Monetary Policy Committee sees significant division over the best way forward,” he said.
The fallout from the bankruptcy of Silicon Valley Bank and the bailout of Credit Suisse has further complicated the task of central bankers around the world.
Last week, the independent Office for Budget Responsibility predicted UK inflation to fall to 2.9% by the end of 2023 – a forecast Carter said was “increasingly ambitious” in the face of Wednesday pressures.
“To what extent the banking crisis will have changed this forecast remains to be seen, but it feels like a very snappy estimate,” he said.
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