UK inflation has jumped unexpectedly on the back of food prices surging at their highest rate for 45 years, piling pressure on the Bank of England to increase interest rates again this week.
Adding to the squeeze on household incomes, the consumer prices index (CPI) accelerated to 10.4% last month from 10.1% in January, with prices driven higher by a rise in the cost of drinks, meals out and fresh food as salad items ran short.
Goods and services have increased dramatically in price since last year when the official inflation rate was nearer 6%, and by 17.2% over the past two years. Inflation was close to zero in February 2021.
The ONS said the cost of food and non-alcoholic beverages in particular had risen by about 18% in the year to February, its highest rate since August 1977.
February’s rise in CPI came as a shock to City analysts, who had predicted a fall to 9.9% in response to reducing gas and oil prices and the lower cost of raw materials on global markets. Inflation had fallen for the previous three months, cooling from a peak of 11.1% in October to reach 10.1% in January.
Labour accused the government of making families worse off, while business leaders said they were concerned persistently high inflation was damaging Britain.
The Resolution Foundation thinktank said hospitality and food costs were driving price rises, meaning that “‘lower-income families are facing the greatest price pressures of all, with an effective inflation rate above 12%”.
The figures are likely to add to pressure on the Bank of England policymakers to raise interest rates when they meet on Thursday, despite growing fears over the unfolding crisis of confidence in the global banking system after the failure of Silicon Valley Bank in the US earlier this month and the weekend rescue of the Swiss lender Credit Suisse.
Rob Morgan, the chief investment analyst at the stockbroker Charles Stanley, said Britain’s high level of inflation “kept coming back, like the Terminator” and gave the Bank “every reason to hike interest rates”.
The ONS blamed a sharp increase in the cost of fresh food and non-alcoholic drinks, the rising price of restaurant meals and a surge in the price tag on women’s clothes for reversal in a recent decline in inflation.
The salad crisis, which resulted in empty shelves once occupied by tomatoes, peppers and cucumbers, was highlighted by the ONS as the driving force behind the rise in fresh food costs. The cost of vegetables rose 18% in the year to February – the highest rate since February 2009.
Rising food prices have also pushed up inflation in the last month in France, Spain and Germany, though at much lower levels than in the UK.
The ONS chief economist, Grant Fitzner, said: “Food and non-alcoholic drink prices rose to their highest rate in over 45 years with particular increases for some salad and vegetable items as high energy costs and bad weather across parts of Europe led to shortages and rationing.”
The British Chambers of Commerce said February’s shock rise showed the UK was still in the midst of “a stubborn peak” in inflation. The business lobby group’s head of research, David Bharier, said: “The main drivers of inflation – restaurants and hotels, food, and clothing – confirm the pressure we see on the hospitality and retail sectors. The longer this goes on, the greater the impact on businesses and consumers as much higher prices become the norm.”
Labour’s shadow chancellor, Rachel Reeves, said: “With inflation figures this morning still close to a 40-year high, families across Britain are feeling worse off.”
However, the economist Kathryn Keane warned against focusing on one month’s figures and emphasised that energy price falls were likely to continue pulling down inflation over the next six months.
The New Economics Foundation said families were struggling and urged the Bank not to add to pressure on them by raising borrowing costs again. That echoes calls earlier this week from one of Threadneedle Street’s former rate setters, David Blanchflower, who urged the bank to cut the base rate from 4% to 3%.
Downing Street said Rishi Sunak remains confident he will fulfil his pledge made in early January that the UK would halve inflation this year. The prime minister’s spokesman said last month’s rise showed that “reducing inflation is not something that is automatic, it’s not something we’re on a glidepath to do, it requires discipline and making difficult decisions – that’s why we want to stick with our plan to get inflation under control.”
Core inflation, which strips out volatile items such as food and energy, also increased sharply in the UK to 6.2% in February, up from 5.8% the previous month, exceeding economists’ expectations of a slowdown to 5.7%.
The increase in the price of services is likely to fuel concerns that large corporations have protected their margins, using the cost of living crisis to “disguise price rises”, in a trend dubbed “greedflation”.
The Unite union’s general secretary, Sharon Graham, said: “Unite’s own research shows that it’s profits propelling inflation, while workers’ wages struggle to keep up … People are sick of seeing their budgets get stretched thinner and thinner every month while big business racks up record profits.”
Energy prices also played a part in the inflation figures, though to a lesser extent than a year ago, pushing down the cost of transport. Britain remains one of the countries most dependent on imported food and energy in the industrial world.
