February saw slight rise in inflation

Inflation rose to 10.4% in February, the Office of National Statistics (ONS) has revealed with the publication of its latest Consumer Price Index (CPI) data.

The 0.3-percentage point rise on the annual rate of inflation from January’s figures ends three months of consecutive falls and goes contrary to predictions from economists that the rate of price rises would slow throughout 2023.

The rise is in-line with other European countries, with France and Germany, which use directly comparable measures of inflation, both seeing rising inflator in February. Despite this UK inflation remains above the level seen in both these other major European economies (7.3% in France, 9.3% in Germany), while the EU-wide rate of inflation across all 27 member states stands at 9.9%.

The rise in inflation has been driven largely by continued steep increases in food and drink prices, both in shops and supermarkets as well as in hospitality settings. Food and non-alcoholic drinks are on average 18% more expensive than in February 2022, while prices in restaurants and hotels are up 12.1% on last year; both categories have also seen month-on-month price rises of around 2% compared to January 2023.

The Bank of England is tomorrow (23rd March) expected to raise interest rates for the 11th time since December 2021 in order to curb inflation following the publication of the latest ONS data. Recent instability in the banking sector, including the recent collapse of California’s Silicon Valley Bank and support offered to Credit Suisse by the Swiss government, had led to some economists to expect central banks around the world, including the US Federal Reserve and the Bank of England, to hold back on raising interest rates further, with a more cautious 0.25 percentage point rise. Interest rates are broadly expected to cap out at around 4.5% this year, with inflation expected to fall to between 4% and 5% by the end of 2023.