The United Kingdom is observing its highest inflation March since 1992. The country’s cost of living is increasing more than ever, and the prices of food, fuel, energy are soaring the skies. February’s consumer price index print was higher than the 5.9% annual rate expected by experts polled by Refinitiv and much beyond January’s prior 30-year record of 5.5 per cent.
Consumer Price Index inflation was 0.8% monthly. Proceeded to exceed expectations by 0.6% rise. Since 2009, This has been the most significant monthly CPI increase between January and February.
During its three consecutive monetary policy meetings, the Bank of England increased borrowing costs from its iconic low 0.1% to 0.75%. It is looking to tackle inflation without putting economic growth on the back burner.
Last week the tone of the Monetary policy was more dovish than expected by the market. Squeezing of the household incomes was highlighted amid the rising prices of commodities due to the Russian invasion of Ukraine. In the second quarter of 2022, inflation is expected to peak at 8%.
The Consumer Prices Index, including owner occupiers’ Housing costs (CPIH) which is the preferred metric for the office of national statistics, observed a rise of 5.5% (12 months to February) from 4.9% (12 months to January).
Housing and household services contributed 1.39 percentage points to the February 2022 CPIH 12-month inflation rate. It mainly included gas, electricity, and other fuels. The significant additional contribution is from transport with 1.26 percentage points. The ONS explained in its Wednesday report that it is principally from second-hand cars and motor fuels.
On Wednesday, British Finance Minister Rishi Sunak is expected to address the rising costs of living crisis in his Spring Statement.
Consumer prices are rising continuously and will squeeze household income more. In April, an increase of 10% to National insurance (a tax on earnings) kicks in for many workers. To accommodate higher costs of oil and gas, the U.K.’s energy price cap to increase by 54% from April.
Paul Craig, portfolio manager at Quilter Investors, said that people’s wages are swallowed up. The government needs to act immediately to save people from slipping into a financial crisis. This morning’s inflation data is enough for the government to know how dire the situation is.
Given the stagnation in the progress of the Russia-Ukraine war, investors should watch the market closely and allocate accordingly due to the uncertainty in stocks, inflation, and the market environment is delicate.