UK inflation unexpectedly jumps to 10.4% in February

The consumer price index grew from 10.1% in January, while the consumer price index including owner occupiers’ housing costs (CIPH) rose to 9.2% in February, up from 8.8% a month prior, according to data from the Office for National Statistics.

The ONS said the increases were largely attributed to rises in housing and household services – in particular fuel, gas and electricity prices – as well as food and non-alcoholic beverages.

Housing costs accounted for 16% of the CPIH and are the “main drivers for differences between the CPIH and CPI”, the ONS added.

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Meanwhile, food and non-alcoholic beverage prices rose by 18.2% in the year to February, up from 16.8% in January. The ONS noted this is the highest annual rate since August 1977 (21.9%).

The figures follow last week’s Spring Budget, where Chancellor Jeremy Hunt said the Office for Budget Responsibility forecast inflation to drop to 2.9% by the end of the year.

Commenting on February’s CPI, Hunt said: “Falling inflation is not 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.”

While the Chancellor looks to reassure households, industry experts said all eyes are now on the Bank of England, which is set to reveal its monetary policy decision tomorrow (23 March).

Many believe the inflationary jump will mean further rate hikes.

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John Leiper, CIO at Titan Asset Management, said : “This is a real problem for the Bank of England, which will need to stay the course on further rate rises, increasing the probability of recession later in the year. The UK pound is higher versus the US dollar on the news.”

Emma Mogford, fund manager for the Premier Miton Monthly Income fund, agreed the additional pressures will be a problem for the Bank of England, but added increasing rates now could mean pushing the UK into a recession later in the year.

Even the latest market movements following the collapse of Silicon Valley Bank and the sale of Credit Suisse may not be enough to convince the BoE to halt further rate hikes for now, according to Richard Carter, head of fixed interest research at Quilter Cheviot.

He continued: “The rhetoric from the BoE will continue to be that inflation is the primary concern, however, events in the banking sector have somewhat taken over and the monetary policy committee has been seeing significant divisions on the best way forward.

“But with this inflation reading, the picture is incredibly clouded and the case for further rate hikes is strengthened.”