UK inflation data reflects the UK economy.
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UK inflation unexpectedly jumped in February, as food and energy bills continued to rise, putting more pressure on households.
The consumer price index (CPI) increased 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%, exceeding the forecast of 0.6%.
“The largest upward contribution to the monthly change in CPIH and CPI rates came from restaurants and cafes, food, and clothing, partially offset by downward contributions from recreational and cultural goods and services (mainly recording media), and motor fuel, ” UK Office for National Statistics said.
The Consumer Price Index including owner occupied 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 slow price increases since the 41-year high of 11.1% reached in October.
British households continue to grapple with high food and energy bills, while workers in various sectors have launched mass strike action in recent months amid disputes over pay and conditions.
The print will cause another headache for the Bank of England, which has raised interest rates aggressively to rein in inflation and will announce its latest monetary policy decision on Thursday.
Richard Carter, head of fixed interest research at Quilter Cheviot, said that the path down to inflation will not be smooth, and suggested that the Bank of England may be forced to continue increasing the bank rate beyond the current level of 4%.
“The rhetoric from the BoE will continue that inflation is the main concern, but events in the banking sector have taken a bit of a turn and the Monetary Policy Committee has seen a significant division on the best course of action,” he said.
The fallout from the failure of Silicon Valley Bank and the emergency bailout of Credit Suisse added further complexity to the task facing central bankers around the world.
Last week, the independent Office for Budget Responsibility estimated that UK inflation would fall to 2.9% by the end of 2023 – a forecast Carter said was “increasingly ambitious” as it printed on Wednesday.
“How much the banking crisis will change this prediction remains to be seen, but it is a very high estimate,” he said.