Aurelia Butler

The unexpected jump in UK inflation in February, coupled with turmoil in the global banking sector, leaves Bank of England rate setters facing an even tougher decision than usual on Thursday. The latest data, showing inflation at 10.4 per cent, has reinforced fears that price rises are increasingly being driven by domestic pressures in the services sector, rather than the external shock of high energy prices. Because these pressures tend to be more persistent, the data has cemented market expectations that the BoE will raise interest rates again.But in the last fortnight, concerns over the health of the global banking sector have intensified. Although there is no evidence so far of any UK-specific issue, and central banks maintain that financial stability will not get in the way of their inflation-fighting mandates, the tensions in financial markets are likely to make many banks more wary of lending. Other things being equal, this would reduce the need for interest rate increases. “The surprise inflation rise last month will further complicate the decision facing monetary policy committee members over what to do about interest rates, as they grapple with turmoil in the banking sector,” said James Smith, research director at the Resolution Foundation think-tank. Some of the surprise rise in February’s inflation data was due to one-off factors such as the weather-related shortages of lettuce and cucumbers that led to empty shelves in UK supermarkets and helped drive up prices of food and non-alcoholic drinks at their fastest pace for 45 years. But price rises were broad-based, including in sectors such as hospitality, where labour costs play a big role. Annual services inflation, considered a better measure of domestic price pressure, accelerated to 6.6 per cent. In the hospitality sector, it rose to its highest rate on record.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

UK core inflation, which strips out volatile food, energy, alcohol and tobacco prices, rose sharply to 6.2 per cent and it is now 0.7 percentage points higher than that of the US after broadly mirroring it for most of last year. The continuing high levels of inflation set the UK apart from other major economies. The rate has only marginally slowed from a 41-year peak of 11.1 per cent last October, and the gap between Britain and the US and eurozone has widened. The acceleration of core and services inflation suggests that “there may be more domestically generated inflation pressure than the Bank has assessed to date”, said Krishna Guha, economist at the investment bank advisory company Evercore.Kallum Pickering, economist at investment bank Berenberg, said the BoE decision on Thursday “will hinge on whether policymakers believe the backward-looking inflation surprise is likely to be the start of a trend or whether it is a one-off linked to normal monthly volatility”. He noted that Wednesday’s data came after inflation slowed more than expected in January and added that “caution still favours a hold” by the BoE because raising rates before the full impact of global monetary policy tightening has unfolded “risks adding to problems that would eclipse those associated with excess inflation over the medium term”.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

With the UK housing market already reeling from the effects of rising mortgage rates, “the risk is that a hike now could end up pushing inflation below target further down the line”, said Susannah Streeter, head of money and markets at Hargreaves Lansdown, a financial services companyThe concerns are that “the banking scare will end up being a disinflationary force by leading to a knock-on effect on lending which could hit the spending of companies and consumers if loans are a bit harder to come by”.The BoE had been closer to stopping increasing rates than any other major central bank before the recent banking turmoil, but markets now expect a 25 basis point increase on Thursday.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

This would be the 11th consecutive rate increase since November 2021, with the central bank increasing rates from 0.1 per cent by nearly 400 basis points to 4 per cent in an effort to bring inflation down to its 2 per cent target. UK energy prices, which were the main driver of inflation for most of the past year, are now falling but not by enough to offset the increases in other items. Prices of fuel fell 1.3 per cent between January and February and the annual pace slowed sharply to 5.1 per cent last month, from a peak of 45.8 per cent in July 2022.Despite the slowdown, UK energy inflation remains much higher than in the US and the eurozone, reflecting the different level of government support and the country’s exposure to the international energy market. More

Today’s top storiesThe Federal Reserve has just announced an increase in US interest rates of a quarter of a percentage point and signalled further rises are to come.UK prime minister Rishi Sunak easily won a House of Commons vote on his new post-Brexit deal for Northern Ireland by 515 to 29, but only after suffering a damaging Conservative revolt led by three ex-Tory leaders.Russia is overhauling how oil companies are taxed to bolster state revenues. The planned reforms reflect the growing murkiness of the Russian oil market under sanctions.For up-to-the-minute news updates, visit our live blogGood evening. A surprise jump in UK inflation to 10.4 per cent in February has fuelled concerns about the cost of living crisis and reinforced expectations that the Bank of England will raise interest rates tomorrow.The increase, from 10.1 per cent the previous month, was driven by an 18.2 per cent rise in food and non-alcoholic drink prices, the highest pace in more than 45 years. Core inflation, which strips out food and other volatile items such as energy, also rose more than expected, from 5.8 per cent to 6.2 per cent.Soaring food prices are especially bad news for poorer households as they make up a greater proportion of their spending. The opposition Labour party accused the government of having its priorities wrong, preferring a “£1bn bung” for the top 1 per cent in its recent Budget, rather than doing more to alleviate pressures on those at the bottom.Food prices have been pushed up by a range of factors. Britain’s farmers have been struggling with rising input costs on everything from fuel to animal feed, while they have also lost income because of Brexit, as new UK support failed to match previous EU payments. February saw a rise in salad vegetable costs and shortages at supermarkets because of supply chain problems as well as adverse weather conditions in Spain and Morocco. Farmers are also still suffering from post-Brexit labour shortages.Energy prices, which had been the main driver of the surge in inflation, are now falling, but remain higher than in the US and the eurozone.Like other central banks, the BoE is faced with the task of raising rates to restrain inflation against a backdrop of turbulence in the banking sector. Chancellor Jeremy Hunt told parliament yesterday that the BoE should remain focused on the inflationary threat even as he acknowledged that recent rate rises were the “root cause of the volatility we have seen in recent months”. Markets are now predicting an increase of 0.25 percentage points tomorrow, with some even pricing in a rise of 0.50 points. Before today’s data, investors were evenly split between forecasting a quarter point rise and no change.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Although the UK has the highest inflation in the G7, it is not alone in struggling to turn the tide. European Central Bank chief Christine Lagarde warned today of the risk of a “tit-for-tat dynamic” between companies and workers as demands for higher wages increased price pressures. Lagarde said recent ECB rate rises were only starting to take effect and needed to continue to “bring rates to sufficiently restrictive levels” to damp demand. Her comments echo those of Bundesbank chief Joachim Nagel, who said rate-setters must be “more stubborn” in their fight against inflation. Germany’s economic council separately warned that financial market instability was making the task that much harderBrowse our global inflation tracker to see how your country compares.Need to know: UK and Europe economyEU greenwashing rules that were watered down after business lobbying have been attacked by consumer groups. Industrialists said the bloc’s attempts to compete with US green subsidies were insufficient. Brussels attempted to resolve its spat with Germany over a proposed ban on vehicles with combustion engines by suggesting new models using carbon-neutral e-fuels could be sold after 2035. The IMF has struck a deal with Ukraine for a $15.6bn loan and a long-awaited financial lifeline. Our latest Big Read tells the story of the war’s effect on Ukraine’s agricultural sector through the fate of Nibulon, one of its biggest grain producers.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Need to know: Global economyChinese president Xi Jinping backed Vladimir Putin over Ukraine but held back from confirming plans for a crucial pipeline to reroute Russia’s gas exports from Europe to Asia. The IMF approved a $3bn bailout for Sri Lanka to help it restructure its debts and address a “catastrophic” economic and social crisis. The country’s progress is being closely watched by other troubled debtors that owe large amounts to China, such as Ghana and Pakistan.Venezuela’s oil minister resigned amid a corruption probe into Petróleos de Venezuela, the state oil company. Tareck El Aissami was a leading figure in former president Hugo Chávez’s “Bolivarian revolution”.The Democratic Republic of Congo said it was losing almost $1bn a year in minerals illegally smuggled into Rwanda including gold, tin, tantalum and tungsten.Need to know: businessAsian investors who had loaded up on Credit Suisse AT1 debt were said to be “gobsmacked” at the $17bn bond wipeout when it was taken over by UBS. The EU vowed to maintain bank creditor hierarchies and respect bondholders’ rights, while the wipeout could hit further issuance of risky bank debt. Switzerland meanwhile has banned deferred bonuses for CS staff. Here’s our new explainer on what the takeover means for UBS.In the US, treasury secretary Janet Yellen signalled that the government would provide further backing for deposits at smaller American banks if needed. Bank shares rose in response. Want more? Head to our special “Banks in turmoil” section.The head of JPMorgan Asset Management warned that property could be the next sector under threat from rising borrowing costs. Commercial property values have started to fall in recent months as borrowing costs hit investors’ ability to transact.Commodity traders hit record profits in 2022 from extreme volatility in energy markets after Russia’s invasion of Ukraine.Chinese tech group Tencent returned to growth as consumer spending started to tick up after pandemic restrictions ended. TikTok is caught up in a US-China legal struggle over its powerful algorithm, said to be one of the most advanced uses of artificial intelligence in consumer technology.Google launched its Bard chatbot, which provides answers to text-based questions, in a bid to rival OpenAI’s popular ChatGPT. Nestlé, the world’s largest food company, said less than half of its mainstream food and drinks were considered “healthy”. The widely used health star rating system measures levels of saturated fats, sugar and salt as well as “positive nutrients” such as fibre, fruit and vegetables.The World of WorkIs it better to use carrots or sticks to get people back into work? For the past 25 years or so, a lot of countries have gone big on the latter, writes columnist Sarah O’Connor, but forcing the unemployed into low-paid work isn’t a good solution to today’s labour market problems, she argues.What’s the best way to get back into work after several years of retirement? Careers expert Jonathan Black and FT readers offer some advice.Our new Working It podcast discusses the unintended consequences of mass lay-offs.Some good newsKindness is on the rise. Although this week’s World Happiness Report reflects a turbulent period of human history, it also shows a globe-spanning surge in benevolence, with “prosocial” acts about one-quarter more common than before the pandemic. More

Macron, seeking to regain the political initiative after narrowly surviving a no-confidence vote in parliament this week, made the remarks in a rare TV interview.”We have big companies that are in the process of buying back their own shares… we need to find the right way but they must share (profits) more with their employees,” Macron said.He said he would ask the government to work on what he called an “exceptional contribution” by companies to the benefit of workers. Macron did not provide further details and the Finance Ministry did not immediately respond to a request from Reuters for more information. More