Rishi Sunak was preparing to stand up in the House of Commons on Wednesday with a set of numbers no chancellor wants to read out. Inflation at 6.2 percent. A 30-year high. And the worst may not be over.
The Office for National Statistics published the February consumer price index at 7 a.m. Economists had forecast 5.9 percent. The actual figure blew past that. Only three of 39 respondents in a Reuters poll had predicted such a strong reading. The jump from January’s 5.5 percent was steep. The last time inflation ran this hot was March 1992. John Major was prime minister. The Maastricht Treaty was months old.
The numbers tell a story of broad pressure. Household energy bills surged nearly 25 percent year-on-year. Petrol prices kept climbing. And the ONS noted something unusual: food prices were rising across the board. In normal times, some food items go up while others fall. That pattern has broken. The result is a cost-of-living crisis that hits poorer households hardest. When everything costs more at once, there is no room to trade down.
How did Britain get here? It is a compound crisis. Energy prices began climbing in late 2021 as global demand rebounded faster than supply. Then Russia invaded Ukraine in February 2022, sending gas and oil prices higher still. The war also disrupted grain and fertilizer markets. Food inflation followed. The Bank of England had already started raising interest rates in December 2021, the first of what would become a series of hikes. But monetary policy works with long lags. It cannot undo a shock already in the pipeline.
February’s inflation reading captures prices before the full effect of the April energy price cap increase. That rise, announced in February, will push typical household bills up by £693 a year. So the 6.2 percent figure is not the peak. It is a waypoint.
Yael Selfin, chief economist at KPMG UK, said the data reinforced the case for tighter monetary policy. The Bank of England has been raising rates to cool demand. But Selfin predicted price growth would peak before long, provided inflation expectations stay anchored and global commodity prices stabilize. “This may require fewer rate rises than markets currently anticipate,” she said. Her forecast: inflation back to the Bank’s 2 percent target by mid-2024.
That timeline depends on a lot of ifs. Global commodity prices have not stabilized. The war in Ukraine grinds on. Energy markets remain volatile. And inflation expectations are hard to measure until they move.
Sunak’s spring budget update, due later on Wednesday, was already under pressure before the data landed. Opposition parties had called for more help with energy bills and council tax. The inflation number raises the stakes. The chancellor has limited room. Government borrowing costs have risen. The tax burden is already at its highest since the 1950s. He can cut fuel duty or raise the threshold for national insurance. He cannot undo the global forces driving prices.
On a month-on-month basis, consumer prices rose 0.8 percent in February. That is the biggest February increase since 2009, when the economy was still reeling from the financial crisis. Thirteen years later, the pattern is different. Then, deflation was the fear. Now, it is the opposite.
The Bank of England last week raised its own inflation forecast. The new data will only reinforce that view. Markets expect further rate rises. The question is how many, and how fast.
