According to official data released on Wednesday, British consumer price inflation rose unexpectedly to 10.4% in February. This rise was primarily caused by an increase in drinks prices in pubs
and restaurants. This news comes just a day before the Bank of England announces its latest decision on interest rates.
Economists who were polled by Reuters had expected the annual CPI rate to drop to 9.9% in February from January's 10.1% and move further away from October's 41-year high of 11.1%. However, the unexpected rise in inflation has created uncertainty about what the Bank of England will decide about interest rates.
The Bank of England is set to announce on Thursday whether it will raise interest rates for the eleventh meeting in a row. However, investors are divided over whether the bank will continue its run of increasing borrowing costs, given the recent upheaval in the global banking sector.
Richard Carter, head of fixed interest research at Quilter Cheviot, commented that the market movements of late have put the Bank of England in an incredibly difficult position. He believes that it may not be enough for the Bank of England to pause on the rate hikes.
The Office for National Statistics (ONS) has stated that the end of January drinks promotions in pubs and restaurants was the biggest factor contributing to the inflation increase last month. However, shortages of salad items also played a role.
According to Grant Fitzner, chief economist at ONS, "food and non-alcoholic drink prices rose to their highest rate in over 45 years, with particular increases for some salad and vegetable items as high energy costs and bad weather across parts of Europe led to shortages and rationing."
The core CPI, which excludes energy, food, alcohol and tobacco and is closely watched by the Bank of England, rose to 6.2% from 5.8% in January. This was in contrast to the forecast decline to 5.7%.
Furthermore, the annual inflation rate in the services sector, which most policymakers consider to be a good measure of underlying price pressures in the economy, rose to 6.6% after standing at 6.0% in January.
In conclusion, the unexpected rise in British consumer price inflation in February has created uncertainty about the Bank of England's decision on interest rates. This news comes just before the bank's announcement on Thursday about whether it will raise interest rates for the eleventh meeting in a row. The rise in inflation was mainly due to an increase in drinks prices in pubs and restaurants, as well as shortages of salad items. Photo by Jim Goldsmith, Wikimedia commons.