UK inflation rose to 7 per cent in March, hitting a fresh 30-year high after fuel prices surged and putting more pressure on the Bank of England to increase interest rates again.
The increase in consumer prices was up from an annual rate of 6.2 per cent in February and 10 times the 0.7 per cent recorded in March 2021, according to data published by the Office for National Statistics on Wednesday.
The reading was above the 6.7 per cent forecast by economists polled by Reuters, and the highest since March 1992, when it reached 7.1 per cent.
Grant Fitzner, ONS chief economist, said the rise in inflation was “broad-based” and added that among the largest increases were petrol costs, with prices mostly collected before the cut in fuel duty announced in the Spring Statement on March 23.
Transport fuel prices jumped at an annual rate of 30.7 per cent, following a 9.9 per cent increase over the previous month, a near record monthly rise, reflecting surging international energy prices after Russia invaded Ukraine.
Jack Leslie, senior economist at the Resolution Foundation think-tank, said: “The sheer scale of this inflation-led squeeze on living standards makes it all the more remarkable how little support the chancellor provided in his Spring Statement — a decision that will surely have to be revisited before the autumn Budget.”
Inflation in March was more than three times the Bank of England’s target of 2 per cent, and higher than the rate of “around 6 per cent” that it forecast at its last meeting. The BoE said it expected inflation to climb to 8 per cent in April following the increase in the energy price cap set by the regulator, and possibly further in the autumn when the cap is next adjusted.
With inflation constantly coming in higher than expected, most economists now forecast it will rise higher than that.
Core inflation, which excludes volatile items such as energy, food, alcohol and tobacco, rose to 5.7 per cent in March, up from 0.9 per cent in the same month last year and above analysts’ expectations.
Prices of many items rose at a double-digit annual rate, including furniture, cooking oil, clothing, household utensils, second-hand cars, hotels and flight tickets. The increase reflects businesses passing on more of their rising costs while demand rebounded in some sectors following the easing of Covid-19 restrictions.
Food prices rose 5.9 per cent, the highest in a decade, with most types of food registering annual increases above 5 per cent, including bread, meat, milk and fruit.
Rising consumer prices erode what households can buy with their money and official statistics forecast that UK households’ real income will contract this year at the sharpest rate since records began in the 1950s.
March’s reading is the last inflation report before the next BoE monetary policy decision on May 5. The central bank has increased its main rate three times since December, from a historic low of 0.1 per cent to 0.75 per cent.
“The figures will add further pressure on the Bank of England to accelerate the pace of interest rate increases, even though the growth outlook has deteriorated in the past few months,” said Dan Boardman-Weston, chief executive at BRI Wealth Management.
George Buckley, economist at Nomura, forecast that interest rates would rise in May, August and November, to 1.50 per cent by the end of the year.
However, James Smith, economist at ING, said that “policymakers are increasingly shifting focus to the deteriorating growth backdrop” and expected “one or perhaps two more rate hikes”.
The US announced on Tuesday that inflation in March was 8.5 per cent, the highest rate since 1981.
Source: Economy - ft.com
