UK inflation rate surprises again with March figure holding above 10%

City workers in Paternoster Square, where the headquarters of the London Stock Exchange is based, in the City of London, UK, on Thursday, March 2, 2023.

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U.K. inflation unexpectedly remained in double-digits in March as households continued to grapple with soaring food and energy bills.

The consumer price index rose by an annual 10.1%, according to the Office for National Statistics, above a consensus projection of 9.8% in a Reuters poll of economists.

This is a slight dip from the unexpected jump to 10.4% of February, which broke three consecutive months of declines since October’s 41-year high of 11.1%.

On a monthly basis, CPI inflation was 0.8%, above a Reuters consensus of 0.5% and down from the 1.1% of February.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.9% in the 12 months to March 2023, down slightly from 9.2% in February but well above expectations.

Core CPIH, which excludes volatile food, energy, alcohol and tobacco prices, rose by 5.7% over the 12 months, unchanged from February’s annual climb — which will be a concern for the Bank of England.

“The largest upward contributions to the annual CPIH inflation rate in March 2023 came from housing and household services (principally from electricity, gas and other fuels), and food and non-alcoholic beverages,” the ONS said in the Wednesday report.

As British households continue to contend with high food and energy bills, workers across a range of sectors have launched mass strike action in recent months amid disputes over pay and conditions.

U.K. Finance Minister Jeremy Hunt said the Wednesday figures reaffirm why the government must continue efforts to drive down inflation.

“We are on track to do this — with the OBR (Office for Budget Responsibility) forecasting we will halve inflation this year — and we’ll continue supporting people with cost-of-living support worth an average of £3,300 per household over this year and last, funded through windfall taxes on energy profits,” Hunt said in a statement.

Bank of England’s tough task

The Bank of England last month hiked interest rates by 25 basis points to 4.25%, and traders are pricing a 72% probability of a further quarter-point hike at the Monetary Policy Committee’s meeting on May 11.

U.K. unemployment edged up to 3.8% in the three months to the end of February, new data showed Tuesday, while economic inactivity levels fell and employment rates also rose by more than expected.

“For the BoE, although there are hints of a softening in the tightness of the jobs market, particularly in the continued fall in vacancies, the jobs market remains tight overall,” said Victoria Clarke, U.K. chief economist at Santander CIB.

“The latest report does not deliver the reassurance that the MPC is likely to be looking for that pay growth is moderating down towards rates consistent with the BoE inflation target.”

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