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U.K. Inflation Surges Unexpectedly to 10.4%, Putting Pressure on Bank of England to Hike Rates

The U.K. inflation rate unexpectedly jumped to 10.4% in February, according to data released by the Office for National Statistics. This figure is above the consensus forecast of 9.9% among economists in a Refinitiv poll and up from 10.1% in January. The increase was mainly driven by rising food and energy bills, which continue to put pressure on households.

Picture: Kumaon Jagran

The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 9.2% in the 12 months to February 2023, up from 8.8% in January. This unexpected rise marks a break from three consecutive months of slowing price increases since the 41-year high of 11.1% reached in October.

The rise in inflation poses a headache for the Bank of England, which has been aggressively hiking interest rates in an attempt to rein in inflation. The Bank of England will announce its latest monetary policy decision on Thursday, and the unexpected rise in inflation may mean that they are forced to continue increasing the bank rate beyond its current level of 4%.

Richard Carter, head of fixed interest research at Quilter Cheviot, said that the downward path for inflation will not be smooth and suggested that the Bank of England may be forced to continue hiking interest rates. "The rhetoric from the BoE will continue to be that inflation is the primary concern, however, events in the banking sector have somewhat taken over and the Monetary Policy Committee has been seeing significant divisions on the best way forward," he said.

The failure of Silicon Valley Bank and the emergency rescue of Credit Suisse has added a further layer of complexity to the task facing central bankers around the world. The fallout from these events may have changed the inflation outlook, and the independent Office for Budget Responsibility's projection that U.K. inflation would plummet to 2.9% by the end of 2023 is now increasingly ambitious.

The unexpected rise in inflation has put additional pressure on British households, who are already contending with high food and energy bills. Workers across a range of sectors have launched mass strike action in recent months amid disputes over pay and conditions.

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