UK inflation rises to 10.4%

One cold day doesn’t mean winter is coming, but it is a stark reminder that we are not out of the woods yet.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Inflation didn’t follow the script in February, rising to 10.4% from 10.1% in January. While one cold day doesn’t mean winter is coming, it is a stark reminder that we are not out of the woods when it comes to high inflation.

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“Many of us are still in budgeting mode as heightened costs continue to weigh on household budgets. Inflation is becoming more prominent in other categories. Last month’s hike in headline inflation was fuelled by price increases in restaurants and hotels, food and non-alcoholic beverages, and clothing and footwear divisions. Falls in the cost of motor fuel partially offset these rises, but the price of food ticked up.

“Seeing everyday items grow more expensive is causing many to change their habits to make room in their budgets. But while Britons are cutting back at the margins, the core factors fuelling inflation are sticky because they form part of essential expenditure for many. Britons are still spending, which is not allowing the economy to cool and is keeping inflation elevated.

“The Office for Budget Responsibility (OBR) expects inflation to fall to 2.9% in Q4 2023. That will feel like a long way away for those struggling to maintain financial resilience. The onslaught of heightened costs in April piles even more pressure on household budgets, with council tax, broadband, mobile phone, water and sewage, as well as energy bills (with the £400 winter discount set to expire), all set to rise.

“The surprising rise in inflation last month may force the Bank of England to rethink its interest rate strategy. It seems odds-on that the Bank will up interest rates tomorrow in a further attempt to cool inflation, but whether this will signal a pause in hikes remains to be seen. The elephant in the room is whether efforts to contain fears of contagion across the financial sector following the collapse of Silicon Valley Bank and the rescue deal for Credit Suisse will encroach on efforts to rein in rampant inflation. It is a tricky balancing act.”