UK inflation jumps to 10.4% as cost of living crisis intensifies – business live

Sterling is rallying on the foreign exchange markets, after inflation jumped unexpectedly to 10.4% in February.

The pound has gained half a cent against the US dollar today to $1.226, and almost half a eurocent against the single currency to €1.139.

Traders will be calculating that the Bank of England is more likely to raise interest rates higher, as soaring inflation turns up the heat on the central bank.

Alberto Gallo, CIO of Andromeda Capital Management, warns that the Bank of England appears to be stumbling in the fight against inflation.

Core inflation, which strips out food, energy, alcohol and tobacco, rose last month too – which will not please the Bank of England.

Core CPI rose to 6.2% in February, up from 5.8% in January, a sign that inflationary pressures are building in the economy.

Increased prices for womens clothing also pushed up UK inflation last month, with prices rising more in February than a year ago.

Prices of clothing and footwear rose, overall, by 8.0% in the year to February 2023, up from 6.2% in the year to January 2023

Prices usually rise between January and February as new stock starts to enter the shops as retailers end their January sales – but the 2.5% rise in 2023 is the largest observed between January and February since 2012.

The ONS says:

The upward effect on the change in the headline rate between January and February 2023 was principally from women’s clothing, where prices rose by more this year than a year ago.

UK food and non-alcoholic drinks prices rose at the fastest rate in 45 years, the inflation report shows, driving up the cost of living.

Food and non-alcoholic drink inflation jumped to 18.2% in the year to February 2023, up from 16.8% in January, the ONS says.

Data modelling suggests the rate would have last been higher in August 1977, when it was estimated to be 21.9%.

Vegetable prices rose by 18% in the year to February 2023, the highest rate since February 2009.

The shortages of some fruit and vegetables in the shops last month may have driven up prices.

The ONS says:

The largest upward effect came from vegetables, where prices rose in the month to February 2023 by more than a year earlier.

There have been media reports of shortages of salad produce and other vegetables, reportedly because of bad weather in southern Europe and Africa, and the impact of higher electricity prices on produce grown out of season in greenhouses in the UK and northern Europe.

The annual inflation rates for bread and cereals, chocolate and confectionery, other food products (principally ready-meals and sauces) and hot beverages were each the highest since at least 2008.

This is the first rise in UK inflation in four months, and pushes CPI towards the 41-year high of 11.1% set in October 2022.

UK inflation has jumped unexpectedly, in a blow to households.

Consumer prices rose by 10.4% in the year to February, the Office for National Statistics reports, up from 10.1% in January.

The ONS says the largest upward contributions to inflation came from housing and household services (principally from electricity, gas, and other fuels), and food and non-alcoholic beverages.

Economists had forecast a drop to 9.9%, so this is a surprise to the City.

This leaves inflation sharply higher than the Bank of England’s target of 2% – giving policymakers something to ponder before they set UK interest rates tomorrow.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The cost of living squeeze is in focus on both sides of the Atlantic today.

In the UK, inflation is expected to fall when the latest consumer prices index data is released at 7am.

The annual CPI index is expected to have risen by around 9.9% in February, down from 10.1% in January. That would be the lowest reading since last August, and a welcome return to single-digit inflation.

However, falling inflation does not mean that prices are falling – simply that they are rising less quickly (compared to a year ago).

Yesterday, chancellor Jeremy Hunt warned the House of Lords Economic Affairs committee that inflation was “dangerously high”, at over 10% adding “we need to do everything we can to maintain our focus on bringing it down.”

Falling inflation would please the Bank of England, which will release its decision on UK interest rates at noon tomorrow.

Today, though, it’s the US central bank’s turn to set borrowing costs.

Before the banking crisis blew up this month, the US Federal Reserve had been expected to hike interest rates by a half of one percent, another large increase. But with three US banks having failed in the last few weeks, the Fed may be more cautious.

Economists broadly expect a quarter-point increase from the Fed tonight (the decision is 6pm UK time, or 2pm in New York). But they could surprise Wall Street by holding borrowing costs…

Naeem Aslam, chief investment officer at Zaye Capital Markets, explains:

Heading into the meeting, the Fed is expected to raise interest rates by 25 basis points, which is still much lower than when Jerome Powell, the Fed Chairman, delivered his statement to Congress a few weeks ago.

Traders began pricing in a 50 basis point interest rate rise for today’s meeting at the time. Yet, the crisis in US regional banks has caused traders to reconsider their views, and the broad belief today is that the Fed will take its foot off the gas pedal.

We’ll hear from Fed chair Powell tonight too, and gauge how concerned he is about the banking crisis, and the economy…

The agenda

• 7am GMT: UK inflation report for February released

• 7am GMT: UK PPI report of producer price inflation released

• 9.30am GMT: UK house price index

• 2.15pm GMT: UK Treasury committee to quiz the independent Office for Budget Responsibility (OBR) on the budget

• 6pm GMT: Federal Reserve decision on US interest rates

• 6.30pm GMT: Fed chief Jerome Powell holds press conference