According to economists, the Bank of England will likely raise interest rates next month after inflation did not fall as much as anticipated in March.
The official data released today shows that the annual inflation rate for consumer prices fell to 10.1% last month. This is higher than the 9.9% predicted by economists. Food prices continue to rise.
The reading on inflation shows that, for the second month in a row, price pressures are more persistent than expected. This is a problem for the rate-setters of the Bank’s Monetary Policy Committee (MPC), who had forecasted a steep drop in inflation for this year.
The financial markets now place a high probability that the MPC will increase borrowing costs by another 25 basis points at its next meeting, on May 11. This would bring the base rate up to 4.5 percent. This has led to the pound strengthening by 0.25 percent against the dollar today, reaching $1.24.
MPC said that it would react to news about inflation and the job market before deciding whether or not to increase rates again after almost 18 months. The Tuesday figures from the job market showed a strong increase in employment.
Jessop stated that there are many reasons for the inflation to drop sharply over the next few months, including the tightening of monetary and financial policies, which has only recently begun to take effect.
Office for National Statistics reported that food and beverage price inflation increased again in March. It rose by 19.2 percent compared to a year ago, following an increase of 18.2 percent in February. Bread and cereal prices increased at the fastest rate ever recorded, continuing a trend that has seen food prices rise. This is attributed to supermarkets looking to increase their profit margins.
A measure of core inflation, which excludes food, alcohol, and energy, was unchanged last month at 5.7%. This is a worrying sign that the price pressures will not ease.
Since last September, the inflation rate has remained in double figures. A steep increase in energy costs was a major factor in this. In recent months energy prices have dropped and have been replaced by soaring food costs.
The price of food in Europe has risen after the Ukraine war pushed up prices for grains and vegetable oils, and energy costs have driven up the cost of packaging and transport.
The start of this year saw retailers suffering from shortages due to bad weather in Africa and southern Europe, and higher electricity costs on products grown in greenhouses outside of season in the UK. ONS reported that the price of meat, fruit, and chocolate was higher in July.
Bruna Skarica is an economist with Morgan Stanley. She said that food inflation was likely to have peaked, but it would slowly decline over the next year, to around 7 per cent.
Grant Fitzner is the chief economist of the ONS. He said that the main drivers for the decrease [in the inflation rate] were motor oil prices and heating costs. Both of these fell sharply after sharp increases at the same period last year. Clothing, furniture, and household items prices all increased but at a slower pace than they did a year earlier. The cost of food is continuing to rise steeply. Bread and cereal prices are at record levels.
Jeremy Hunt, chancellor of the United Kingdom, said that the government must “continue with our efforts to reduce inflation in order to ease pressure on businesses and families”.
He said: “We’re on track, as the Office for Budget Responsibility predicts we will reduce inflation by half this year.” Cost of living assistance will continue to be provided, with an average of 3,300 PS per household this year and last. This is funded by windfall tax on energy profits.