Inflation in the UK hits the new highest level in several decades at 6.2%

LIVERPOOL, UNITED KINGDOM – JANUARY 23: The day Britain officially enters a recession, shoppers walk through Liverpool city center on January 23, 2009 in Liverpool, UK. Figures released today confirm that the UK is officially in a recession for the first time since the early 1990s, after GDP fell in two consecutive quarters of 2008.

Photo by Christopher Furlong / Getty Images

LONDON – Inflation in the UK reached 6.2% annually in February, the highest since March 1992, as rising food, fuel and energy costs continue to exacerbate the country’s cost of living crisis.

February’s print of the consumer price index was above consensus expectations among economists polled by Refinitiv to an annual figure of 5.9% and markedly exceeded January’s previous 30-year high of 5.5%.

On a monthly basis, CPI inflation was 0.8%, exceeding expectations of a 0.6% increase and marking the largest monthly CPI increase between January and February since 2009.

The Bank of England has raised interest rates at three consecutive monetary policy meetings, raising borrowing costs from its historically lowest level of 0.1% to 0.75%, as it appears to be holding inflation back without slowing economic growth .

The Monetary Policy Committee delivered a more dove-like tone than expected from the market last week, highlighting the pressure on household incomes amid a sharp rise in commodity prices following Russia’s invasion of Ukraine. Politicians now expect inflation to peak at 8% in the second quarter of 2022.

The Consumer Price Index including Homeowners’ Cost of Living (CPIH) – the preferred measure of the Office for National Statistics – rose 5.5% in the 12 months to February 2022, up from 4.9% in the 12 months to January.

The largest upward contributions to the CPIH 12-month inflation rate for February 2022 came from housing and household services (1.39 percentage points, primarily from electricity, gas and other fuels, and owners’ housing costs) and transport (1.26 percentage points, primarily from motor fuels and used cars), ”ONS explained in its report on Wednesday.

Spring declaration

British Finance Minister Rishi Sunak is under pressure to address the cost of living crisis when he submits his spring statement later on Wednesday.

A planned 10% increase for National Insurance (a tax on earnings) sets in for many workers in April, while the UK energy price cap rises by 54% to meet higher oil and gas costs, exacerbating the pressure on household income as consumer prices continues to move north, and Russia’s war in Ukraine shows little sign of abating.

“This morning’s inflation data show how serious the situation is and there is a clear need for the government to act to help save many from slipping into financial difficulties as their salaries are quickly swallowed up,” said Paul Craig, portfolio manager at Quilter Investors.

“Markets and developed economies continue to struggle with rising inflation along with the uncertainty surrounding Russia’s war against Ukraine. Given the delicate market environment, investors will need to keep a close eye on data and markets and allocate accordingly.”

Dan Boardman-Weston, Chief Investment Officer at BRI Wealth Management, noted that while fuel costs remain a major contributor to inflation in the UK, the weight of their contribution to the overall rate appears to be declining.

“The data continue to point in a few more months with increases in the inflation rate, but we expect this to slow down as we enter the summer. Given the strength of the labor market and the overall economy, it seems inevitable that The Bank of England will continue down the road with further rate hikes, “Boardman-Weston said.

“However, raising interest rates at a time of high household bills and rising taxes could stifle economic recovery by putting too much pressure on consumers. The bank will have to carefully balance the need to try to tame inflation without tipping the economy out. in a recession. “

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