United Kingdom: Inflation marks multi-year high in February

Consumer prices in the UK rose 0.7% in February compared to the prior month, contrasting January’s 0.5% fall. February’s significant uptick was driven by a rise in the prices of transport, food and non-alcoholic beverages and furniture, household equipment and maintenance. Transport prices were influenced by higher fuel costs, while the rise in food prices was underpinned by higher prices for certain vegetables due to poor growing conditions in southern Europe.

Inflation increased markedly from 1.8% in January to 2.3% in February, the highest rate since September 2013 and overshooting analysts’ expectations of a 2.1% rise. Inflation had been rising steadily since the back end of 2015, but has shot up in recent months largely due to the depreciation of sterling, and now stands above the Bank of England’s 2.0% target rate. Annual average inflation also picked up from 0.8% in January to 1.0% in February.

The Bank of England sees inflation averaging 2.7% in 2017 and 2.6% in 2018. FocusEconomics Consensus Forecast panelists expect inflation to average 2.5% in 2017, which is unchanged from last month’s forecast. For 2018, the panel forecasts that inflation will also average 2.5%.