Unexpectedly, the UK saw consumer prices rise further in February. Economists had expected inflation to fall to 9.9%. But exactly the opposite happened: the inflation rate rose to 10.4 percent from 10.1 percent in January.
Economists are therefore stunned that prices have continued to rise, instead of the expected slight decline. “This will likely encourage the Bank of England (BoE) to hike rates further despite the turmoil of the banking crisis,” Victoria Scholar, head of investment at Interactive Investor, told The Guardian. In particular, the rising prices of food, hotel nights, restaurant visits and fixed costs have caused an unexpected increase in the inflation rate. Fixed costs, such as rent, water, gas and electricity increased enormously (26.6%). The increase in food and soft drink prices averaged more than 18%.
“About half of the year-over-year increase is attributable to rising restaurant and hotel prices, while food and soft drink prices also showed notable increases. This was more than enough to offset the drop in petrol prices,” says chief economist Martin Beck of EY’s UK economics office.
New decline expected
Nonetheless, inflation is expected to ease over the remainder of the year. There are still good reasons to believe that inflation will fall significantly this year and that the increase in February will prove to be a one-off. But despite the expected drop, inflation will remain high, adds Alpesh Paleja, CBI chief economist. “Despite further declines in the coming months, we will still see high inflation for households and businesses this year.”
The opposition Labor Party finds persistently high inflation, which has suddenly risen again, disturbing. For example, Shadow Chancellor of the Exchequer Rachel Reeves (Labour) complains about the support the Conservatives give to the richest people in the country. “The cost of living weighs heavily on families and taxes are rising. But the government chooses to use the budget to give £1 billion to the top 1 per cent.’
Inflation in the EU is much lower
The British will also probably look with envy at the Eurozone, where inflation is much lower. For example, headline inflation in the eurozone was 8.5% in February, up from 8.6 the previous month. Treasury Secretary Jeremy Hunt will also be hit hard. When he took office, he promised that inflation would be halved. He also said that inflation will fall below three percent by the end of the year.
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Meanwhile, economists eagerly await the BoE’s interest rate decision tomorrow. Though central bankers will once again depend on the situation surrounding the banking crisis and the interest rate decision the US central bank takes tonight.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
