View more on these topics

UK inflation soars to highest level since 2013

UK inflation soared in February, rising from 1.8 per cent in January to 2.3 per cent, its highest rate since September 2013.

The shock rise in CPI, which was above the Monetary Policy Committee’s prediction, was due to core inflation, which rose from 1.6 per cent in January to 2 per cent in February, surpassing the consensus 1.7 per cent.

Ruth Gregory, UK economist at Capital Economics, says the economy is being affected by the import price shock much sooner than the MPC expected.

“The rise in the headline rate primarily reflected a 0.25 percentage point boost from a jump in core goods inflation – which includes, for instance, clothing, tech goods and recreational items – to 0.8 per cent in February, from 0.1 per cent in January. These goods are commonly imported.

“In addition, the contribution to inflation from motor fuel increased by 0.1 percentage points. A jump in food inflation to 0.2 per cent, from -0.5 per cent in January, also boosted the headline rate by nearly 0.1 percentage points.”

While inflation is unlikely to rise much further in March due to when Easter falls, it could jump in April as electricity and natural gas prices rise, Gregory says.

“We continue to think that CPI inflation will average about 3 per cent this year and peak at about 3.5 per cent towards the end of 2017. Inflation therefore looks set to exceed the MPC’s forecast for an average rate of just 2.4 per cent this year,” Gregory adds.

“But with the pickup chiefly reflecting sterling’s depreciation rather than domestically-generated inflation and no signs yet that wage growth is tracking inflation higher, a majority of members likely will still vote to keep interest rates on hold this year.”

Ben Brettell, senior economist at Hargreaves Lansdown, says take-home pay is now outpaced by inflation.

“Today’s inflation bulletin from the ONS feels somewhat like Groundhog Day, as the fall in sterling continues to make its way through to the high street,” he says.

“Inflation at 2.3 per cent is now higher than the growth in average earnings (2.2 per cent), meaning real pay is officially shrinking. The interplay between these two numbers will be closely watched over the coming months. The UK economy relies heavily on consumer spending and a squeeze on household budgets would not be good news. As for the next few months’ inflation bulletins – expect more of the same.


January retail sales drop as inflation starts to bite

UK retail sales appear to be taking a hit from higher inflation, falling 0.3 per cent month-on-month in January, in contrast to an expected gain of 0.9 per cent. It follows a drop of 2.1 per cent in December and signals potential problems ahead for the UK economy. Inflation figures this week reached 1.8 per […]


BMO’s Gary Potter: Rise in inflation set to redefine markets

BMO Global Asset Management multi-manager Gary Potter says inflation increases will redefine markets this year as he looks back at the commodity rally in 2016. The co-manager of the F&C MM Navigator fund with Robert Burdett believes market reaction to the increase in oil price from a year ago will eventually translate into a boost […]

Life begins at…

By Fiona Holmes, proposition communications manager Having reached a certain age (it’s the new 40 by the way), I’m having to come to terms with the fact that my peers and I aren’t as immune from illness or death as we’d like to think. That’s the problem with 30 being the new 20 and 40 […]

The Investment Clock: Keep calm and Macron!

Trevor Greetham, Head of Multi Asset In a marked contrast to the surge in risk sentiment that followed President Trump’s election in November, markets greeted Emmanuel Macron’s victory in the French presidential election with satisfaction and relief, rather than euphoria. After rallying strongly on opinion polls that accurately predicted the outcome, the euro held onto […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment