The U.K. experienced unexpected double-digit inflation in March due to the ongoing struggles of households to cope with rising food and energy bills. The Office for National Statistics reported that the consumer price index increased by an annual 10.1%, which surpassed the Reuters poll consensus projection of 9.8%. However, this figure slightly decreased from February’s unexpected jump to 10.4%, which broke a streak of three months of declines since the 41-year high of 11.1% in October 2022. CPI inflation was 0.8% monthly, higher than the Reuters consensus of 0.5% but lower than February’s 1.1%.
The Consumer Prices Index, including owner-occupier housing costs, rose 8.9% over 12 months, down from February’s 9.2% but still higher than expectations. Core CPIH, which excludes volatile food, energy, alcohol, and tobacco prices, rose by 5.7% over 12 months, the same as February’s annual climb. The Bank of England is concerned about this trend, as it challenges them.
Food and non-alcoholic beverages prices rose by 19.2% over the year to March 2023, the sharpest annual increase in over 45 years. In recent months, workers in various sectors have launched mass strike action over pay and conditions, and British households are still struggling with high food and energy bills.
Despite the slight decline in the headline figure of March, economists expect a more significant drop in April due to the base effects of the jump in energy prices in April 2022, when the U.K.’s energy regulator lifted its price cap by 54%. While headline inflation is heading in the right direction, the central bank still needs to feel comfortable that price pressures are under control. A prolonged period of economic growth will be required to control core price pressures. Another 25 basis point rate hike appears highly likely in May, and policymakers must stand ready to take further action unless economic data shows more definitive signs of cooling.