UK consumer inflation jumped to 10.2%, putting pressure on BoE

UK’s inflation jumped more than expected, putting pressure on the Bank of England (BOE), which will start its two-day meeting on Tuesday. 

According to the Office of National Statistics (ONS), the headline consumer price index (CPI) rose from – 0.6% in January to 1.1% in February. That increase caught many analysts by surprise since they were expecting inflation to jump by 0.6%.

On a year-on-year basis, UK’s inflation jumped from 10.1% to 10.4%, bucking a trend that has been going on for months. Analysts were expecting the data to show that inflation jumped to 9.9% during the month. 

The closely-watched core consumer price index also continued rising in February. It rose from – 0.9% to 1.2% in February, higher than the median estimate of 0.8%. Inflation rose from 5.8% to 6.2% on an annualized basis. 

The only positive data in the report was the producer price index (PPI) data. The numbers showed that the PPI input crashed to -0.1% in February while PPI output fell by – 0.3%. On a year-on-year basis, PPI input and output rose by 12.7% and 12.1%, respectively. 

These numbers were important became they came when the Bank of England (BOE) monetary policy committee is starting its meeting. It will deliver its rate decision on Thursday. 

As such, the bank will likely maintain its hawkish tone by hiking by 50 basis points to 4.50%. Before these numbers came out, the baseline view was that the bank would hike rates by 0.25%.

Like the Fed, which I wrote about here, the BOE is under pressure to balance the inflation fight with safeguarding the financial sector. While UK banks like Lloyds and Natwest have been safe, the worry is that contagion could spread soon. The British pound tose after the strong inflation report. According to TradingView, the GBP/USD pair rose to an intraday high of 1.2266 while the EUR/GBP price tumbled to a low of 0.8773.