UK Inflation, Highest In Western Europe, Falls Only A Little In March

By Donna Ahern
UK Inflation, Highest In Western Europe, Falls Only A Little In March

Britain was the only country in western Europe with double-digit inflation in March after it fell less than expected, data showed on Wednesday, bolstering bets that the Bank of England will raise interest rates again in May.

Consumer prices rose by an annual 10.1%, the Office for National Statistics said, down from 10.4% in February but above the 9.8% forecast by economists polled by Reuters.

Inflation, which hit a 41-year high of 11.1% in October, continued to eat into the spending power of workers whose pay is rising by less, as the price of food and non-alcoholic drinks jumped 19.1% in March - the biggest such increase since August 1977.

Milk, sugar and olive oil prices were around 40% higher than a year ago.

Britain's headline March figure was the highest in western Europe and the only one at 10% or above. Austria recorded a higher inflation rate in February.


The reading underlined expectations that Britain will suffer higher inflation for longer than its peers due to a diminished workforce following the COVID-19 pandemic, heavy reliance on natural gas for power and heating, and trade and labour market frictions caused by Brexit.

Inflation Impact 

Core inflation - which strips out volatile energy and food prices - failed to fall as expected and instead held at 6.2%, as investors priced in a 95% chance that the BoE will raise rates next month, up from 80% on Tuesday.

Sterling rose against the dollar and British government bond prices fell to their lowest since early March.

"It's now clear the UK has an inflation problem that is worse and more persistent than in Europe and the U.S.," said Ed Monk, associate director of personal investing at asset manager Fidelity International.


"Price rises here are proving more difficult to neutralise and the Bank of England will almost certainly add at least one more quarter-point hike to borrowing costs."

Services inflation - a gauge of mostly domestic price pressures - also failed to budge lower in March.

"These figures reaffirm exactly why we must continue with our efforts to drive down inflation so we can ease pressure on families and businesses," finance minister Jeremy Hunt said.

Falling Significantly? 

Last week the International Monetary Fund forecast that inflation would average 6.8% in Britain this year - the highest of any major advanced economy, though not much above the rate of 6.2% forecast for Germany.


In March the BoE said it expected inflation to 'fall significantly' in the second quarter. In February, the BoE had forecast March inflation of 9.2%.

While inflation is likely to drop naturally as last year's sharp increases in energy prices fall out of the annual comparison, the BoE is trying to judge how fast it will decline.

Inflation in prices charged by manufacturers fell sharply in March to its lowest since October 2021 at 8.7%, down from 11.9% in February, largely reflecting a drop in oil prices.

Raw material costs for manufacturers were 7.6% higher than a year earlier - down from February's 12.8% but less of a drop than economists polled by Reuters had been expecting.

Read More: UK Retailers Report Mother's Day Boost In March

News by Reuters, edited by Donna Ahern, Checkout. For more retail news, click here. Click subscribe to sign up for the Checkout print edition.

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