The Bank of England’s dilemma just got worse. The ONS has announced annual prices rose 4.4 per cent in the year to February, up from 4 per cent in the year to January and considerably above the Bank’s 2 per cent target.
The 0.7 per cent month-on-month rise takes UK inflation to its highest level for nearly two and a half years. Upward price pressure from heating costs and clothing more than offset downward price pressure from tobacco and alcohol. (It is worth remembering, however, that in that very recent history, inflation has been higher and has reduced to below target – reminding us how quickly the rate can move in both directions.)
Expect heated discussions of a rate rise to follow. Though since the Bank’s (short-term) inflation tolerance seems to have risen in recent months, the country’s growth figures are likely to hold far greater sway. If the economy shrank in the first quarter – as it did in the last quarter of last year – this will strengthen the argument that the economy cannot yet sustain an increase in interest rates.