Sterling jumped on March 22, 2023 after data showed UK price pressures picked up a lot more than expected in February, including inflation that excludes food and energy, raising the chances of another rate rise this week from the Bank of England. British consumer price inflation (CPI) unexpectedly rose to 10.4 percent in February from January’s 10.1 percent, figures from the Office for National Statistics showed on March 22, 2023.
Economists polled by Reuters had forecast the annual CPI rate would drop to 9.9 percent in February. The pound was last up 0.3 percent against the dollar at $1.2, from a 0.1 percent gain prior to the data. The euro fell 0.3 percent against the pound to 87.9 pence, from 88.0 pence earlier. “Big unexpected jump in UK inflation this morning, breaking a three-month stretch of prior declines. This is a real problem for the Bank of England, which will need to stay the course on further rate rises, increasing the probability of recession later in the year,” John Leiper, chief investment officer at Titan Asset Management, said. Money markets show a 61.6 percent chance the Bank of England (BoE) will raise rates by a quarter point when it meets on March 23, 2023, up from around 57 percent on March 21, 2023. The core CPI, which excludes energy, food, alcohol and tobacco and is watched closed by the BoE, rose to 6.2 percent from 5.8 percent in January, versus a forecast decline to 5.7 percent.
The annual inflation rate in the services sector, which most policymakers consider a good measure of underlying price pressures, rose to 6.6 percent from 6.0 percent in January. The pound has risen by 2 percent against the dollar so far in March, partly reversing some of February’s 2.43 percent drop. But it is struggling to make much headway, given traders widely expect the BoE to make this week’s rate decision the last hike for now. At over 10 percent, the rate of inflation is more than five times the BoE’s target rate of 2 percent and the highest among the Group of Seven richest nations. “One other thing that we also know about inflation in the UK is that it goes up quickly and comes down slowly, and with wage inflation also rising it is likely to remain sticky,” CMC Markets strategist Michael Hewson said.
Source: IBP