UK inflation data paints a picture of the UK economy.
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Inflation in the UK unexpectedly spiked in February as food and energy bills continued to rise, putting further pressure on households.
The consumer price index (CPI) rose 10.4% year-on-year, higher than the 9.9% consensus forecast among economists in a Refinitiv poll and up from 10.1% in January. On a monthly basis, CPI inflation was 1.1%, beating forecasts by 0.6%.
“The largest contributions to the monthly change in both the CPIH and the CPI ratio came from restaurants and cafes, food and clothing, which was partially offset by declining contributions from goods and services. recreational and cultural services (especially recording media) and motor fuel,” said the UK Office for National Statistics.
The consumer price index including cost of owner’s housing (CPIH) rose 9.2% in the 12 months to February 2023, up from 8.8% in January.
The unexpected rise in February marks a breakthrough after three consecutive months of slow price gains since 41-year high of 11.1% reached in October.
Households in the UK continue to struggle with high food and energy bills, while workers in many sectors have launched mass strike action in recent months in the context of disputes over wages and conditions.
pound rose 0.4% against the dollar early Wednesday.
Bank of England ‘on the blade’
Print will cause additional headaches for Bank of Englandcapital is raising interest rates aggressively in an attempt to curb inflation and will announce its latest monetary policy decision on Thursday.
Richard Carter, head of fixed-rate research at Quilter Cheviot, said the path down for inflation would not be smooth and suggested the Bank of England could be forced to continue raising bank rates. exceed the current 4% level.
“The narrative from the BoE will continue to be that inflation is the primary concern, however, events in the banking sector have somewhat taken hold and the Monetary Policy Committee has seen a split,” he said. significantly on the best road ahead”.
The fallout from the failure of the Silicon Valley Bank and the Credit Suisse emergency bailout added a level of complexity to the task faced by central banks around the world.
Last week, the independent Office for Budget Responsibility forecast that UK inflation would plummet to 2.9% by the end of 2023 – a forecast Carter called “increasingly ambitious” based on the printout. on Wednesday.
“How much the banking crisis will change this prediction remains to be seen, but it is a very strong estimate indeed,” he said.
Jake Finney, chief economist at PwC, said the result was the first failure of the Bank of England mandate since inflation began to fall in November, noting that inflationary pressures is starting to diverge.
“Food price inflation continues to hit new highs and restaurant and coffee shop prices rise further, while on the other hand, transport price inflation continues to decline as gasoline and diesel prices fall sharply,” he said. than”.
Despite the bumps on the road, PwC still sees inflation falling through most of 2023 to move closer to the Bank’s 2% target. However, Finney noted that “the squeeze on living standards isn’t over yet.”
OBR projects real household disposable income per person, a measure of living standards, to decline by a combined 5.7% between 2022/23 and 2023/24.
“The Bank of England’s decision on Thursday remains decisive. The latest inflation data offers a setback but the Bank of England has made it clear that it will not be affected,” Finney said. by monthly changes in data points”.
“We expect to see one last 25bp rally from the Bank of England. However, further volatility in financial markets could keep sentiment towards the decision flat.”
