Published: Wed, March 22, 2017
Economy | By Melissa Porter

British inflation surges to 2.3pc

ONS deputy national statistician Jonathan Athow said: "Inflation has risen to its highest rate for nearly three-and-a-half years with price increases seen across a range of items but with food and fuel having the largest impact".

The cost of living surged to 2.3 per cent in February as measured by the Consumer Prices Index (CPI) and its new headline replacement the Consumer Prices Index including housing costs (CPIH), the Office for National Statistics (ONS) today revealed.

United Kingdom inflation surged above the Bank of England's 2.0 percent target for the first time in over three years in February.

"The steeper than expected upturn in inflation will also lead to speculation that the Bank of England will turn more hawkish". This could force Carney to act sooner than expected, hiking the rates in order now to have to "follow" the inflation, trying to contain it. 'The UK economy relies heavily on consumer spending and a squeeze on household budgets would not be good news, ' he said. Food prices increased by 0.3 percent on the same period a year earlier.

Last year's Brexit vote triggered a steep decline in the pound, which has significantly ramped up the cost of importing goods - and oil in particular, which is priced in dollars.

Reflecting those moves, the ONS said another factor in February's stronger inflation - the highest rate since September 2013 - was pricier laptops and tablets.

Ben Brettell, Senior Economist at Hargreaves Lansdown, commented: "The figure exceeded consensus forecasts of 2.1%, but despite this the market reaction was relatively muted, with sterling gaining around a third of a cent and the FTSE trading a few points lower".

The deficit last month narrowed to 1.8 billion pounds, compared with 4.6 billion pounds in February 2016, boosted by the highest tax receipts on record for the month of February.

With BOE officials facing both accelerating prices and the possibility of Brexit uncertainty and weaker household finances, they're trying to balance the two by saying they will tolerate inflation overshooting their target and maintaining their support to the economy. We expect inflation to hit 3% this year and on its current trajectory real earnings are likely to start shrinking by the summer.

Sterling rose against the US dollar to its highest level in three weeks after the data.

"Working people across the United Kingdom are now facing the double blow of rising prices and slower wage growth". Today's rapid increase is part of a wider trend with price rises set to the big living standards story of this year.

A jump in transport costs was also driving inflation higher, with motor fuels rising 1.2% month-on-month in February. The Bank of England expects growth to remain modest, and the most recent labor-market data showed it cooled to 2.3 percent in the quarter through January from 2.6 percent. Some see inflation rising to 3% by the summer. With one month left to go, borrowing for the financial year so far was £47.8bn.

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