UK inflation misses forecasts as food prices soar
By Abigail Townsend
Date: Wednesday 19 Apr 2023
(Sharecast News) - UK inflation declined by less than expected last month, official data showed on Wednesday, as record food prices continued to mount.
According to the Office for National Statistics, consumer price inflation was 10.1% in the year to March, down from February's surprise 10.4%. Economists were expecting a fall to 9.8%.
It is now the seventh successive month that headline CPI has remained in double figures.
On a monthly basis, CPI rose by 0.8%, compared to a rise of 1.1% in March.
The largest downward contributions came from motor fuels and heating oil prices, but soaring food prices weighed heavily. Food inflation hit a fresh 45-year high of 19.2% in March, from February's 18.2%.
Once more volatile energy, food, alcohol and tobacco prices were stripped out, core CPI including owner occupiers' housing costs (CPIH) rose by 5.7% in the 12 months to March, unchanged on February. Core CPI was 6.2%, above forecasts for 6.0%.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "Higher-than-expected UK inflation, combined with sticky wages growth, is helping fuel expectations that the Bank of England may not be done with its interest rate hikes just yet, and may opt for another 25 basis point hike - taking the bank rate to 4.5% - on 11 May."
Michael Hewson, chief market analyst at CMC Markets UK, said: "While the BoE may have been the first of the main central banks to start hiking rates at the end of 2021, their timidity in pushing rates higher since then appears to have created a situation that has meant inflation is likely to remain higher for longer.
"Andrew Bailey has said on several occasions that the MPC expects inflation to cool and that the country needs to be careful about a wage-price spiral. This comes across as somewhat tone deaf when inflation is average over 10% a month and wages haves lagged CPI since October 2021."
Neil Wilson, chief market analyst at Finalto, said: "You have to question whether the BoE's complacency and lack of urgency compared to the ECB and the Federal Reserve has left the UK with worse inflation than the Eurozone or US. There has not been a 'whatever it takes' mantra, partly because they know that the property market is so vulnerable as millions of fixed rate deals roll off in the coming months.
"But we cannot live with 10% inflation for long without big political ramifications."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The fall in CPI inflation likely is too modest for the MPC to hold back from raising the bank rate one final time next month.
"Accordingly, we now expect the MPC to hike the rate one last time to 4.5%.
"Looking ahead, the headline rate of CPI inflation likely will drop to about 8% in April, as energy's contribution falls by about 1.5 percentage points to just 1.0pp on the anniversary of surges in electricity, natural gas and motor fuel prices."
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