U.K. inflation unexpectedly jumped in February, as food and energy bills continued to rise, placing further pressure on households.
The consumer price index (CPI) increased by an annual 10.4%, above 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%, exceeding a forecast of 0.6%.
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“The largest upward contributions to the monthly change in both the 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,” the U.K. Office for National Statistics said.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose 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.
British households continue to contend with high food and energy bills, while workers across a range of sectors have launched mass strike action in recent months amid disputes over pay and conditions.
The print will pose a further headache for the Bank of England, which has been hiking interest rates aggressively in a bid 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 downward path for inflation will not be smooth, and suggested the Bank of England may be forced to continue increasing the bank rate beyond its current level of 4%.
“The rhetoric from the BoE will continue to be that inflation is the primary concern, however, events in the banking sector have somewhat taken over and the Monetary Policy Committee has been seeing significant divisions on the best way forward,” he said.
The fallout from the failure of Silicon Valley Bank and the emergency rescue of Credit Suisse has added a further layer of complexity to the task facing central bankers around the world.
Last week, the independent Office for Budget Responsibility projected that U.K. inflation would plummet to 2.9% by the end of 2023 — a forecast Carter said was “increasingly ambitious” in light of the Wednesday print.
“How much the banking crisis will have changed this prediction remains to be seen, but it does feel a very punchy estimate,” he said.