(Bloomberg) -- Britain’s inflation rate remained stubbornly high in double digits in March, another surprisingly strong reading that will strengthen the case for more interest rate rises at the Bank of England.
The Consumer Prices Index rose 10.1% from a year ago, driven by the strongest increase in food prices in more than four decades, the Office for National Statistics said Wednesday. Economists had expected a slowdown to 9.8%.
The figures add to pressure on the Bank of England to continue its quickest cycle of interest rate increases in four decades. Policy makers led by Governor Andrew Bailey had signaled a pause was possible if inflationary pressures subsided, but today’s reading suggests that prices in the UK have more momentum than in the US or eurozone.
The pound jumped against the euro, rising more than 1% after the report. UK government bonds plunged, pushing up yields at least 5 basis points for two- and five-year maturities.
Inflation in the services sector remained 6.6%, while food and non-alcoholic beverages jumped 19.1%, the most since 1977.
Grocery bills continued to spiral higher with food and non-alcoholic drink price inflation hitting a 45-year high of 19.1%. The ONS said it was driven by record increases in costs for bread, hot beverages and chocolate and confectionary.
Prime Minister Rishi Sunak made cutting inflation in half by the end of the year one of his five key promises as he battles to restore his Conservative Party’s standing in the polls.
“These figures reaffirm exactly why we must continue with our efforts to drive down inflation so we can ease pressure on families and businesses,” said Chancellor of the Exchequer Jeremy Hunt. “We are on track to do this.”
The BOE is considering whether it can pause its quickest tightening cycle in four decades, anticipating inflation will fall sharply the rest of this year.
However, the rate-setters face a balancing act after resilient wage growth reported Tuesday added to fears that UK inflation will persistent. Earnings excluding bonuses climbed 6.6% in the three months to February even as unemployment edged up and vacancies declined.
Markets were almost fully pricing in a quarter point hike at the BOE’s next meeting in May.
Britain’s inflation rate retains more momentum than prices in the US and Europe, where CPI has been drifting down for months. In the US, prices rose 5% in March, the slowest in almost two years. In the eurozone, CPI for last month eased to 6.9%, the lowest since February 2022.
