Price growth in the UK accelerated contrary to forecasts

Annual inflation in the UK accelerated to 10.4% in February, while City economists expected it to slow down to 9.9%, according to the Office of National Statistics (ONS).

Consumer prices rose after falling for three consecutive months: from an October 2022 all-time high of 11.1%, inflation slowed to 10.7% in November and 10.5% in December. In January, it was at the level of 10.1%, contrary to the expectations of economists at 10.3%.

The slowdown in consumer price growth also ended in monthly terms: in February, they accelerated by 1.1% after slowing down by 0.6% in January. Prior to this, monthly price growth in December and November 2022 was 0.4% after 2% in October.

Core inflation also returned to acceleration (excluding food and energy prices) – in February it reached 6.2% against 5.8% months earlier. The Bank of England predicted its slowdown to 5.7%.

The main contribution to the monthly growth rate, according to ONS estimates, was made by restaurant and cafe services (2% in February after 0.7% in January), food (2.1% after 0.9%), and clothing (2.5% after 0.8%). But this was slightly compensated by the decline in prices in recreational goods and services (0.8% after 1.7%) and transport (0.7% after 0.9%). The highest rates of annual inflation in February were observed, again, in food (18.2%), restaurant and hotel services (12.1%), housing and household services (11.8%), furniture and household goods (8 .6%) and clothing (8%).

Against the backdrop of accelerating consumer prices, markets expect the rhetoric of the Bank of England to tighten, thinks (Centre for Economics and Business Research – Cebr) Benjamin Travis: “Given the sharp jump in February inflation and the worrying trend of rising core inflation pressure, Cebr expects a key rate increase of 0.25 percentage points.”

Financial markets are pricing in a 95% chance that the Bank of England will raise rates by 0.25 percentage points to 4.25% at its meeting on Thursday, March 23rd. At the last meeting, the regulator raised the rate in increments of 0.5 percentage points.

In the wake of these expectations, the pound sterling sharply strengthened against the dollar. As of 10:00 Moscow time, when the data on British inflation was released, the value of the pound increased to $1.2257 after $1.2228 at 9:45. By 11:15 a.m., the pound hit $1.2279, and by 12:15 p.m., a daily peak of $1.2291.

Last week, UK Treasury Secretary Jeremy Hunt said the Kingdom’s Office of Fiscal Responsibility (OBR) predicts inflation down 8% by end 2023 “Despite continued global volatility, the OBR reported today that UK inflation will ease from 10.7% in the last quarter of last year to 2.9% by the end of 2023. This is more than half,” Hunt said during his speech with the financial plans in the government (quoted by Prime).