Surprise inflation jump weighs on interest rates
Inflation rose last month in defiance of expectations of a fall and will put more pressure on the Bank of England to raise interest rates tomorrow.
The Office for National Statistics said the annual rate of inflation as measured by the consumer prices index came in at 10.4%, against City forecasts for a fall to 9.9%.
The largest upward contributions to the monthly change 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.
Inflation is now at its highest level in 40 years and the prospect of a pause in interest rate rises now looks to be off the table.
There had been expectations that the interest cycle would be coming to an end and that the disruption in the global banking system would add to the case for a less hawkish approach.
UK inflation had fallen for three consecutive months prior to February, easing from a peak of 11.1% in October to 10.1% in January.
Chancellor Jeremy Hunt said: “Falling inflation isn’t inevitable, so we need to stick to our plan to halve it this year.
“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 on average per household this year.”
Alpesh Paleja, CBI lead economist, said: “While inflation rose in February, the outlook for the months ahead is looking more benign, thanks to lower wholesale energy prices. But while we expect inflation to fall back over this year, the firmness in domestic price pressures is something that the Bank of England will be keeping a close eye on.
The Federal Reserve in the US will announce its interest rate decision at 6pm BST.
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