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Data released by the Office for National Statistics' showed Tuesday that UK Consumer Prices Index (CPI) spiked to 2.3 percent in February, up from 1.8 percent in January. UK inflation surged above the Bank of England’s 2.0 percent target for the first time in over three years in February.
The outturn beat consensus expectations at 2.1 percent and was the highest since September 2013, largely driven by food and fuel prices. Food prices increased by 0.3 percent in February compared with a year earlier, ending 31 consecutive months of falling prices. Over the month, food prices rose by 0.8 percent. Fuel prices rose by 1.2 percent between January and February. Core CPI rate (excluding energy, food, alcohol and tobacco) also surged, reaching 2.0 percent in February from 1.6 percent in January, again exceeding consensus forecast.
Further upward pressure on consumer prices looks almost certain as firms pass rising costs onto customers in coming months. Recent PMI survey data show companies’ input costs increasing at a rate not exceeded since before the global financial crisis, due mainly to import costs surging higher as a result of the weakened pound. The same survey data indicate that average prices charged for goods and services are meanwhile rising at the fastest rate for almost six years.
"The steeper than expected upturn in inflation will also lead to speculation that the Bank of England will turn more hawkish. However, it remains likely that policymakers will adopt an increasingly dovish tone in coming months, despite the rise in inflation, as the economy slows due to consumers being squeezed by low pay and rising prices," said Chris Williamson Chief Business Economist, IHS Markit.
