British inflation accelerated sharply in February, official data showed on Wednesday, deepening the cost-of-living crisis and forcing the Bank of England to raise interest rates further despite global market turmoil.
After three straight months of stagnation, the UK Consumer Price Index rose to 10.4 per cent in February – not far from a 40-year high and more than five times the BoE’s target.
That followed CPI from 10.1 percent in January and beat expectations for a slowdown to 9.9 percent.
‘Difficult’ times
Wednesday’s data came after the British government last week forecast inflation would slow sharply to 2.9 percent by the end of the year, adding that the country would avoid recession by 2023.
The forecast was published alongside finance minister Jeremy Hunt’s $94 billion ($114 billion) cost of living estimate for this year and next.
“We recognize how difficult it is for families across the country, so that we can control inflation, we will help families with cost of living support,” Hunt said Wednesday.
Soaring inflation continues to erode the value of wages for millions of British workers, even after a salary increase won by some sectors thanks to mass strike action.
The BoE – caught between hiking rates to reduce hot inflation or taking a break due to turmoil in the commercial banking sector – announced its latest monetary policy announcement on Thursday.
The world’s central banks are rushing to contain the fallout from the collapse of two US regional banks and the purchase of Credit Suisse by Swiss rival UBS.
Rate decisions are also due from the Federal Reserve on Wednesday – and Thursday in Switzerland and Norway.
‘Forced’ up
Nigel Green, head of financial consultancy deVere Group, said the BoE was “likely to feel compelled to continue raising interest rates” after the UK inflation data.
“This is despite fears of a crisis of confidence in the global banking system.”
The BoE has gradually increased the key rate to 4.0 percent from a record-low of 0.1 percent in December 2021.
But inflation remains in double digits, fueled by soaring food and energy prices amid Russia’s war in Ukraine.
“A further acceleration in overall CPI inflation … may be enough to tip the BoE to raise interest rates from 4.0 percent to 4.25 percent tomorrow,” said Paul Dales, chief UK economist at Capital Economics.
“The recent tightening in financial conditions caused by the banking crisis is likely to dampen UK economic activity and underlying price pressures.
“But the Bank of England may want to see hard evidence before it stops raising interest rates,” Dales added.
A widespread shortage of salads and vegetables has pushed UK food prices to their highest rate of increase in more than 45 years, the Office for National Statistics said on Wednesday.
ONS chief economist Grant Fitzner said this was caused by high energy costs and bad weather across Europe.
Inflation was also driven by increases in the price of alcohol in pubs and restaurants following recent discounts.
Worldwide inflation last year hit its highest level in decades, while the UK rate peaked at 11.1 per cent in October.