Britain’s cost-of-living crisis shows no signs of easing after new data showed UK inflation held above 10 percent in March, making the Bank of England more likely to hike rates of interest next month.
Stubbornly high “core inflation” has complicated Rishi Sunak’s efforts to turn around the economy, though headline inflation remains on track to halve by the end of the yearin line with the prime minister’s goal.
Continued high inflation, fueled by sharply rising food prices, will boost demand public sector unions on strike for salary increases for 2023-24, something Sunak is determined to resist.
Jeremy Hunt said that inflation above 10 percent was destabilizing the economy.
“It is not a good place to be, ultimately it is dangerous if you leave it there,” the foreign minister said during an event organized by the Politico website, adding that the tightness of the labor market was a “significant” factor in boosting wage inflation. .
UK inflation stayed in double digits in March with annual price increases of 10.1 percent. Consumer price inflation, which was 10.4 percent in February, was expected to ease to 9.8 percent last month.
Although gasoline and diesel prices fell, steeper increases in the costs of food, recreation and culture, a broad category that includes theater, concerts and sporting events, left the index higher than expected. Food prices alone rose 19.1 percent in the year to March.
He BoE is watching these numbers very closely as they are the last significant data release before their next meeting in May. Officials expected to see the first signs of a significant drop in inflation pressure, but core inflation, excluding food and energy prices, was unchanged at 6.2 percent.
Sterling strengthened, with the pound rising 0.3 percent against the dollar to $1.24 on Wednesday.
Rachel Reeves, the shadow chancellor of the Labor Party, said: “The reality is that under the Conservatives our economy is weaker, prices are out of control and people have never paid so much to get so little in return.”
Grant Fitzner, ONS chief economist, said the fall in motor fuel prices “was partly offset by the cost of food, which continues to rise sharply, with bread and cereal price inflation at a record level”.
The fall of the headline inflation it was caused almost entirely by motor fuels, with the average price of a liter of petrol falling from around £1.60 in March 2022 to just under £1.47 last month. Offsetting this and keeping the headline rate high, food prices shot up, especially bread and cereal.
The stubbornly high inflation rate will provide little comfort to the BoE’s Monetary Policy Committee, which has been looking for signs that underlying inflation pressure is moderating and that headline rate declines are not solely caused by lower energy prices. .
The MPC has said that raise interest rates again from the current level of 4.25 percent “if there were evidence of more persistent pressures.”
Kitty Ussher, chief economist at the Institute of Directors, said that if core inflation is not seen to drop, the bank would have to take action and raise rates again on May 11. solid labor market datait is now clear that there is more demand in the economy than the Bank of England expected in the first quarter.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the drop in the headline rate had been “too modest for the MPC to stop raising rates.”
Capital Economics, a consulting group, said the stubbornness of high inflation raised the possibility that an interest rate hike to 4.5 percent at the May meeting might not be the last.
UK inflation it has not been falling as fast as comparable indicators in many European countries, where lower energy prices were reflected in the March data. But headline rates for the UK are expected to drop significantly next month.
With April gas and electricity prices already known, the annual increase in this component will fall from 96% to 27%, although consumers will not feel better because the maximum price of energy will remain at the same level. These prices are expected to start falling in the summer.