The UK’s consumer price index rose by 10.1% YoY in March, according to the Office for National Statistics, above a consensus projection of 9.8% in a Reuters poll of economists. This is a slight dip from the unexpected jump to 10.4% of February, which broke three consecutive months of declines since October’s 41-year high of 11.1%. Food and energy bills continued to be the main contributors to the rise.
On a monthly basis, CPI inflation was 0.8%, above a Reuters consensus of 0.5% and down from February’s 1.1%. The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.9% in the 12 months to March 2023, down slightly from 9.2% in February but still above expectations. Core CPIH, which excludes volatile food, energy, alcohol and tobacco prices, rose by 5.7% over the 12 months, unchanged from February’s annual climb, which will be a concern for the Bank of England.
The ONS said food and non-alcoholic beverages prices rose by 19.2% in the year to March 2023, the sharpest annual increase for over 45 years. This has led to a significant increase in living costs for UK households, with workers across various sectors initiating mass strike action amid pay and conditions disputes.
UK Finance Minister Jeremy Hunt stated that the figures reaffirm why the government must continue its efforts to drive down inflation. He added that they are on track to do this, with the OBR forecasting halving inflation this year, and that they will continue supporting people with cost-of-living support worth an average of £3,300 per household over this year and last, funded through windfall taxes on energy profits.
The Bank of England hiked interest rates by 25 basis points to 4.25% last month, with traders pricing a 72% probability of a further quarter-point hike at the Monetary Policy Committee’s meeting on May 11. Economists expect the headline figure for March to be followed by a bigger drop in April, due to the base effects of a jump in energy prices in April 2022, when the UK’s energy regulator lifted its price cap by 54%. However, core inflation may prove to be more stubborn, and the Bank of England will need to closely monitor inflation trends in the coming months to determine whether further rate hikes are necessary.
The UK economy was flat in February, as widespread industrial action and the persistent cost of living crisis stymied activity. Concerns over a flatlining economy have led some to suggest that the MPC may be more divided over whether to hike interest rates further in May. Suren Thiru, economics director at ICAEW (Institute of Chartered Accountants in England and Wales), stated that “while core inflation is likely to prove more stubborn, the squeeze on consumer demand from rising taxes and the lagged impact of raising interest rates should put it on course for a firm downward path by the Autumn.”
Overall, the high inflation rate in the UK continues to be a concern for the economy, businesses and households alike. The government and central bank will need to take measures to address the situation and monitor inflation trends closely to ensure that the UK’s economy remains stable and healthy.