London: UK inflation rose unexpectedly for the first time in four months after food and drink prices soared at the fastest pace in 45 years.
The Consumer Prices Index rose 10.4 per cent in February after a 10.1 per cent gain the month before, the Office for National Statistics said Wednesday. Economists had expected the reading to fall back into single digits.
The pound jumped after the report, which will fuel arguments that the Bank of England needs to boost interest rates again as soon as Thursday. Policy makers led by Governor Andrew Bailey had expected inflation to fall sharply this year back to their 2 per cent target.
Once almost certain of another hike this week, investors now have Thursday’s decision on a knife edge after turmoil in the banking industry rattled markets.
After delivering the quickest set of rate increases in three decades, the UK central bank already was sending more neutral signals about the future direction of rates. Bailey has said investors shouldn’t assume more hikes are needed even before regulators stepped in to rescue Silicon Valley Bank and Credit Suisse Group AG.
Inflation peaked at 11.1 per cent in October and is expected to drop sharply this year as comparisons with 2022, when energy prices soared, drop out of the mix. The BOE and Office for Budget Responsibility both expect CPI at 9.7 per cent in the first quarter, with the OBR seeing inflation below target in the first quarter of 2024 and the BOE three months later.
Chancellor of the Exchequer Jeremy Hunt warned that falling inflation “isn’t inevitable.”
We recognise just how tough things are for families across the country, so as we work towards getting inflation under control we will help families with cost of living support worth 3,300 pound on average per household this year
On a monthly basis, CPI rose by 1.1 per cent in February 2023, compared with a rise of 0.8 per cent in February 2022. A major factor was alcohol served in restaurants, cafes and pubs. Prices rose for a wide range of drinks “- gin, whiskey and various beers.
The annual inflation rate for restaurants and hotels was 12.1 per cent in February 2023, up from 10.8 per cent in January, and the highest rate since the constructed historical estimate of 12.1 per cent in July 1991.
Clothing and footwear rose 8.1 per cent in the year to February.
Prices usually rise between January and February as new stock starts to enter the shops following the new year sales period. However, the increases this year are the largest observed between January and February since 2012. The price movements reflect the amount of discounting observed in the datasets.
There were signs of domestic price pressures being more stubborn than the BOE expected. Core inflation “which excludes volatile food and energy prices” picked up to 6.2 per cent, an acceleration from 5.8 per cent.
Services inflation “” a measure being watched by the BOE and seen as an early indicator of wage pressures “” jumped from 6 per cent to 6.6 per cent.
