Bank of EnglandMar 29 2017

Largest monthly rise in inflation since 2012

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Largest monthly rise in inflation since 2012

UK inflation has moved above the Bank of England’s 2 per cent target after rising to 2.3 per cent in February, its highest level since September 2013.

Consensus expectations had been for a rise to 2.1 per cent, but the actual figure represents the biggest monthly increase since October 2012. January’s rate stood at 1.6 per cent.

Unusually, almost all sectors saw some kind of price rises on the month, many as a result of the fall in the value of sterling since last June’s EU referendum. Talk has turned to a potential rate hike by the Bank of England (BoE) in response to the move, but such a scenario still appears a long way off. One member of the BoE’s Monetary Policy Committee, Kristin Forbes, did vote against her eight colleagues and called for rates to rise from 0.25 per cent to 0.5 per cent in February. 

However, Ms Forbes’ tenure on the committee runs out in June, and other members have expressed a willingness to “look through” higher inflation in the short term.

In this regard, they are adopting the same strategy employed in 2011 when inflation was well in excess of 5 per cent.

BlackRock fixed income manager Ben Edwards said the BoE is “unlikely to deviate from this [stance], in my view, with Brexit uncertainty looming large. It’s worth also remembering the 52 months of above 2 per cent CPI inflation in the last 10 years where base rate has remained unchanged.”

Schroders’ senior European economist Azad Zangana added: “The rise in inflation is not being matched by higher wage inflation. As a result, the real disposable income of households is falling, which should reduce demand in the economy and therefore inflation in time. We doubt the Bank of England would want to raise interest rates at a time when household finances are being squeezed.”

Latest weekly earnings figures released in March showed growth of 2.2 per cent, below the latest inflation figure.

dan.jones@ft.com