UK inflation hits four year high

Rising fuel and food prices helped to push last month’s inflation rate to the highest since September 2013.

Inflation, as measured by the Office for National Statistics’ Consumer Prices Index (CPI), jumped to 2.3 per cent in February - up from 1.8 per cent in January.

The increase has pushed the rate above the Bank of England’s 2 per cent target.

Food prices recorded their first annual increase for more than two-and-a-half years, standing 0.3 per cent higher in February than a year earlier.

Andrew Sentance, senior economic adviser at PwC, said: “It is no surprise to see inflation picking up further and going above 2 percent. This is the product of increasing global price pressures and the weakness of the pound.

“Inflation has been rising across a range of countries recently - including the United States and members of the Eurozone - as higher energy and food prices feed through to consumers. The additional upward pressure from the decline in sterling over the past 18 months will push UK inflation up further over the course of this year - to 3 percent or possibly higher.

“Higher inflation will squeeze consumer spending to some degree but if the economy remains resilient, the Bank if England MPC should be considering a rise in interest rates to counter the surge in inflation.”

Liz Cameron, chief executive of Scottish Chambers of Commerce, said: “These latest inflation figures only tell part of the story in terms of the challenges facing Scottish businesses. Rising inflation is not unique to the UK and inflation in the Eurozone has also hit 2% in recent weeks. In common with the rest of Europe, it seems that rising fuel and food prices are the major drivers of this latest increase.

“More worrying is that there is a continuing upward trend in the price of goods leaving factories and in products such as imported metals. These are clear signs that not only will the UK be subject to the same cost pressures that our European neighbours face but that we will also see added pressure from the impact of exchange rates and the weakness of sterling. These issues indicate that forecasters are right when they say that we should expect to see inflation rising at up to 3% over the next year or so.

“As inflation pushes above the government target, we would ask the Bank of England to remain cautious and keep interest rates low for the time being. The most effective economic tools now lie in the hands of the UK and Scottish Governments. They must maintain a strong focus on tackling cost increases to businesses, with sensitive plans for taxation. This is particularly important at a time when businesses are under pressure in terms of the prices of goods and services and in terms of their ability to maintain salaries at a level that will keep pace with rising inflation, thus helping to maintain consumer confidence and preserving demand and growth in the economy.”

Martin Beck, senior economic advisor to the EY ITEM Club, added: “February’s larger than expected pickup was mostly due to the unwinding of January’s unusual seasonal movements in clothing prices and a sizeable contribution from petrol, which had seen prices rise between January and February this year but fall over the same period in 2016.

“We continue to expect inflation to accelerate as we move through the year. Though the worst of the base effects from last winter’s fall in the oil price are now behind us, the recently announced rises in domestic energy bills will hit the index over the next couple of months. And the effects of the weaker pound should continue to feed through this year, taking inflation above 3 per cent towards the end of 2017.

“Separately, public sector net borrowing came in at £1.8bn in February, £2.8bn lower than a year earlier. With January’s surplus also revised up, the Government is on track to see borrowing come in around £1bn lower than the OBR’s full-year forecast of £51.7bn. Although experience tells us that there could still be some substantial revisions to the historical data over the coming months.”