The consumer price index (CPI) increased from 1.8 per cent in January to 2.3 per cent in February, attributed to the pound’s weakness making imports more expensive and rising food and fuel prices.Sterling rose against both the dollar and the euro on the news as speculation increased that the Bank of England would soon have to increase record-low interest rates.The bank had forecast CPI inflation of 2 per cent in February, peaking at 2.8 per cent in the first half of next year. The latest figures, however, could signal higher rates than that.

Global price pressures

Andrew Sentance, senior economic adviser at PwC, said, “It is no surprise to see inflation picking up further and going above 2 per cent. This is the product of increasing global price pressures and the weakness of the pound.“Inflation has been rising across a range of countries recently – including the United States and members of the Eurozone – as higher energy and food prices feed through to consumers.“The additional upward pressure from the decline in sterling over the past 18 months will push UK inflation up further over the course of this year – to 3 per cent or possibly higher.“Higher inflation will squeeze consumer spending to some degree but, if the economy remains resilient, the Bank if England’s Monetary Policy Committee should be considering a rise in interest rates to counter the surge in inflation.”

Inflation historically low

Anna Leach, head of economic intelligence at the Confederation of British Industry, added, “While inflation has risen above the Bank of England’s target, it is still relatively low by historical comparison. Nonetheless, inflation is likely to rise further still, on the back of stronger fuel prices and as the impact of the weaker exchange rate feeds through.“Also, other price data indicates rising costs for businesses, with input prices up 19 per cent on the year.“Addressing regional disparities in productivity performance and delivering a targeted, meaningful industrial strategy will deliver the competitiveness boost needed to help businesses succeed in the global marketplace.”

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A “double blow”

Frances O’Grady, general secretary of the Trades Union Congress, said the latest figures meant that Britain’s workforce was now facing the “double blow” of rising prices and slower wage growth.“If the government doesn’t wake up, we risk sleepwalking into another living standards crisis,” she said. “We urgently need more investment in skills and infrastructure to build strong foundations for better paid jobs. And it’s time to scrap the pay restrictions hitting hardworking teachers, nurses and other public servants.”

Increasing living standards

A government spokesman acknowledged that families were growing increasingly concerned about the rising cost of living. “A strong economy and sustainable public finances are vital to achieve rising living standards,” he said.“The spring Budget set out plans to build a stronger, fairer economy by investing in skills, schools, social care and cutting-edge technology, while continuing to bring down the deficit and live within our means.“The government appreciates that families are concerned about the cost of living, and that is why we are cutting tax for millions of working people, increasing the National Living Wage to £7.50 per hour from next month, and freezing fuel duty for the seventh year in a row.”

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