A person carries a box of tomatoes during early morning business hours at New Covent Garden Market in London, Britain, March 9, 2023. REUTERS
Data released on Wednesday indicated that Britain was the only country in Western Europe with double-digit inflation in March, but falling less than predicted, supporting predictions that the Bank of England would hike interest rates again in May.
Consumer prices climbed by 10.1% year on year, according to the Office for National Statistics, down from 10.4% in February but more than the 9.8% predicted by analysts surveyed by Reuters.
Inflation, which reached a 41-year high of 11.1% in October, continued to cut into the buying power of employees whose salary is growing at a slower rate, as the price of food and non-alcoholic beverages rose 19.1% in March, the largest increase since August 1977.
Milk, sugar and olive oil prices were around 40% higher than a year ago.
Britain’s headline March figure was the highest in western Europe and the only one at 10% or above. Austria recorded a higher inflation rate in February.
The reading underlined expectations that Britain will suffer higher inflation for longer than its peers due to a diminished workforce following the COVID-19 pandemic, heavy reliance on natural gas for power and heating, and trade and labour market frictions caused by Brexit.
Core inflation – which strips out volatile energy and food prices – failed to fall as expected and instead held at 6.2%, as investors priced in a 95% chance that the BoE will raise rates next month, up from 80% on Tuesday.
Sterling rose against the dollar and British government bond prices fell to their lowest since early March.
“It’s now clear the UK has an inflation problem that is worse and more persistent than in Europe and the U.S.,” said Ed Monk, associate director of personal investing at asset manager Fidelity International.
“Price rises here are proving more difficult to neutralise and the Bank of England will almost certainly add at least one more quarter-point hike to borrowing costs.”
Services inflation – a gauge of mostly domestic price pressures – also failed to budge lower in March.
“These figures reaffirm exactly why we must continue with our efforts to drive down inflation so we can ease pressure on families and businesses,” finance minister Jeremy Hunt said.