The Commons chamber during a debate on UK Energy costs in the House of Commons in central London. (Photo by PRU / AFP)
British inflation unexpectedly accelerated in February, official data showed Wednesday, deepening a cost-of-living crisis and pressuring the Bank of England to hike interest rates further despite global markets turmoil.
After slowing for three straight months, the UK Consumer Prices Index shot up to 10.4 percent in February – not far from 40-year highs and more than five times the BoE’s target.
That followed CPI of 10.1 percent in January and dashed expectations for a slowdown to 9.9 percent.
Wednesday’s data comes after the UK government last week forecast inflation would slow sharply to 2.9 percent by year-end, adding that the country would avoid recession in 2023.
The predictions were published alongside finance minister Jeremy Hunt’s £94-billion ($114-billion) cost-of-living measures for this year and next.
“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,” Hunt said Wednesday.
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Soaring inflation continues to erode the value of wages for millions of UK workers, even following pay rises won by some sectors thanks to mass strike action.
The BoE – caught between hiking rates to dampen hot inflation or pausing owing to chaos in the commercial banking sector – unveils its latest monetary policy announcement Thursday.
The world’s central banks are rushing to contain fallout from the recent collapse of two regional US banks and the enforced buyout of troubled Credit Suisse by its Swiss rival UBS.
Rate decisions are due also from the Federal Reserve on Wednesday – and Thursday in Switzerland and Norway.
Nigel Green, head of financial consultancy deVere Group, said the BoE was “likely to feel compelled to continue increasing interest rates” following the UK inflation data.
“This is despite growing fears over the unfolding confidence crisis in the global banking system.”
The BoE has gradually increased its key rate to 4.0 percent from a record-low 0.1 percent in December 2021.
Yet inflation remains in double digits, fuelled by rampant food and energy prices in the wake of Russia’s war on Ukraine.
“The re-acceleration in overall CPI inflation… may be enough to tilt the BoE towards raising interest rates from 4.0 percent to 4.25 percent tomorrow,” said Paul Dales, chief UK economist at Capital Economics.
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“The recent tightening in financial conditions caused by the banking turmoil will probably weaken UK economic activity and underlying price pressures.
“But the Bank of England may well want to see hard evidence of that before it stops raising interest rates,” Dales added.
Widespread salad and vegetable shortages sent UK food prices rocketing to their highest rate of increase in more than 45 years last month, the Office for National Statistics said Wednesday.
ONS chief economist Grant Fitzner said this was caused by high energy costs and bad weather across Europe.
Inflation was driven also by rising alcohol prices in pubs and restaurants after recent discounting.
Inflation around the world last year struck the highest levels in decades, while the UK rate peaked at 11.1 percent in October.
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