City staff at Paternoster Square, home to the London Stock Exchange headquarters, Thursday, March 2, 2023, in the City of London, England.
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UK inflation unexpectedly held in double digits in March as households continued to grapple with soaring food and energy bills.
According to the ONS, consumer prices rose 10.1% annually, above the consensus forecast in a Reuters poll of economists for 9.8%.
That was down slightly from February’s surprise jump to 10.4%, snapping a three-month streak of declines since October’s 41-year high of 11.1%.
On a monthly basis, CPI inflation came in at 0.8%, above the Reuters forecast of 0.5% and down from 1.1% in February.
The consumer price index, which includes the cost of owner-occupier housing (CPIH), rose 8.9% in the 12 months to March 2023, slightly down from 9.2% in February but well above expectations.
Core CPIH, which excludes volatile food, energy, alcohol and tobacco prices, rose 5.7% in 12 months, matching February’s annual gain – which will be a concern for the Bank of England.
“The largest upward contributions to the annual CPIH inflation rate for March 2023 came from housing and household services (mainly from electricity, gas and other fuels), and food and non-alcoholic beverages,” the ONS said in a report on Wednesday.
Workers from all walks of life have staged massive strike action in recent months amid disputes over wages and working conditions as British households continue to grapple with high food and energy bills.
The ONS said food and non-alcoholic drink prices rose by 19.2% in the year to March 2023, the biggest annual rise in 45 years.
Britain’s finance minister, Jeremy Hunt, said Wednesday’s figures reaffirmed why the government must keep trying to keep inflation down.
“We’re on track to get there – and according to OBR (Office for Budget Responsibility) forecasts we’ll halve our inflation rate this year – and we’ll continue to support people with living costs on average £3,300 per household. Years and last year , funded through a windfall tax on energy profits,” Hunt said in a statement.
A daunting task for the Bank of England
The Bank of England raised interest rates by 25 basis points to 4.25% last month, and traders are pricing in a 72% chance of a further 25 basis point hike at the May 11 Monetary Policy Committee meeting.
Economists expect a sharper decline in April after a slight decline in the headline figure in March due to the base effect of rising energy prices after Britain’s energy regulator raises price caps by 54% in April 2022.
Suren Thiru, economics director at ICAEW, said: “While core inflation is likely to be more persistent, the squeeze on consumer demand from tax increases and the lagged impact of rate hikes should put it on a firm downward path by autumn.” (England and Institute of Chartered Accountants Wales).
With the UK economy flat in February as broad industrial action and the ongoing cost-of-living crisis hampered activity, Thiru said the MPC was likely to be more divided on whether to raise rates further in May because of “concerns about a flattening economy.” growing concern”
Hugh Kimber, global market strategist at JPMorgan Asset Management, said that while headline inflation was headed in the right direction again, the central bank was “a long way from being able to comfortably contain price pressures”.
“Yesterday’s labor market data clearly showed how a tight job market is driving strong wage growth. Given the strength of the wage-sensitive services sector, today’s inflation data is clear,” Kimber said.
UK unemployment rate Inched up to 3.8% In the three months to the end of February, new data released on Tuesday showed that the level of economic slack fell and the employment rate was higher than expected.
Victoria Clark, chief UK economist at Santander Bank, said: “For the Bank of England, the labor market remains tight in general despite signs of easing in labor market tensions, notably a continued decline in job vacancies.”
“The latest report offers no assurances that the MPC may seek to slow pay growth to rates consistent with the Bank of England’s inflation target.”
While stabilizing energy prices would help keep inflation in check in the second half of the year, JPMorgan’s Kimber said it was “increasingly clear” that an extended period of sluggish growth would be needed to keep core price pressures in check.
“The likelihood of another 25 basis point hike in May is high and the BoE must stand ready to take further action unless economic data show clearer signs of cooling,” he said.
“Policymakers have made great strides in the fight against inflation. Looking ahead, the biggest mistake is to declare victory too soon.”