U.K. Inflation Rises More Than Expected to New 30-Year High

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By Reed Landberg and Philip Aldrick

(Bloomberg) —

U.K. inflation surged to a new 30-year high of 6.2%, adding to pressure on policy makers to protect consumers from a tightening squeeze on living standards.

February’s reading was higher than the 5.5% recorded in January, the Office for National Statistics said Wednesday. Economists had expected an increase to 6%, with the central bank anticipating a risk of double-digit inflation later this year.

Chancellor of the Exchequer Rishi Sunak has pledged to help the hardest-hit households in his spring economic statement later on Wednesday, adding to 21 billion pounds ($28 billion) of measures already set out to help on electricity and natural gas bills. The Bank of England has raised interest rates three times since December and may act again next month.

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“The chancellor is now under greater pressure to respond to the cost of living crisis when he delivers his Spring Statement later today,” said Colin Dyer, client director at the fund manager Abrdn.

Inflation, which has surged from just 0.4% when the country was locked down for the coronavirus a year ago, has overshot forecasts in eight out of the past 10 months. 

The index rose 0.8% in the month of February alone, the biggest increase since 2009. As in previous months, record fuel and energy costs were a big part of the increases. The figures also reflected broad-based gains, with 10 out of the 12 categories tracked by the ONS increasing in February.

Recreation and culture had the biggest monthly gain in prices, with games, toys and hobbies increasing 2.5% between January and FebruaryClothing and footwear prices rose 8.8% from a year agoFurniture, household equipment and maintenance rose 9.2%The cost of food and non-alcoholic drinks gained 5.1%

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The report included a survey of consumers that will add to concern at the BOE that inflation is bedding into the economy. The ONS said 81% of the people polled in its Opinions and Lifestyle Survey reported an increase in their cost of living in the first half of March. Higher prices are being felt by four-in-every-five Britons now. 

Household behavior is responding. Asked what actions they were taking, half said they were spending less on non-essential items, 37% were using less gas and electricity at home, 37% were shopping around more and 30% were spending less on food and other essentials, the ONS lifestyle survey found.

While consumers are feeling a sharp squeeze on living standards, businesses are also being affected by soaring energy prices. In early February 2022, 16% of businesses reported their production or suppliers suffered from recent increases of wholesale gas prices.

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A separate report into inflation at the factory gate showed:

Producer input prices jumped 1.4%, taking the annual rate to 14.7%, which was close to the highest since records began in 1997Producer output prices grew 0.8% and were up 10.1% from a year earlier, the highest annual since 2008

“Rising inflation is now hardwired into routine business decisions, with price increases spread widely across all sectors of the economy,” said Kitty Ussher, chief economist at the Institute of Directors, which represents company executives.

The BOE is concerned that will lead to a broader increase in prices across the economy, potentially prompting workers to demand higher wages and fueling an inflationary spiral. Sunak and the Treasury are worried about the impact on the poorest households who already are having trouble affording their utility bills.

Gas prices have surged over the past year with a reduction in supplies from Russia. The invasion of Ukraine raises the risk that those shipments are further limited, either by the government in Moscow or by sanctions imposed by western nations.

Read more: 

Sunak Plans Cost-of-Living Help, Pledges to ‘Stand By’ BritonsSunak Has $13 Billion Windfall to Ease Cost of Living CrisisEnergy Price Drop May Ease Worst of U.K.’s Cost of Living Crisis

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