The Bank of England (BoE) has not raised interest rates since the Great Financial Crisis. During this time, there have been several inflation “scares” as inflation levitated well above the Bank’s 2% target. Through it all, the BoE stood resolute in choosing to see through the elevated inflation in order to avoid premature rate hikes that would have strangled the recovering economy.

Earlier yesterday, March 21st, the Office of National Statistics (ONS) reported that the Consumer Price Index (CPI) rose to 2.3% in February – its highest level since September, 2013. Likely the biggest surprise in the report was a sudden 0.3% rise in the price of food after 31 consecutive months of declines. If this move is an anomaly, inflation could easily flatten out in coming months.

Inflation is on the move again in the United Kingdom.
Source: the Office of National Statistics (ONS) reported that the Consumer Price Index (CPI) rose to 2.3%

Starting with the February report, the ONS added a Consumer Prices Index including owner occupiers’ housing costs (CPIH). According to the ONS: “CPIH extends the Consumer Prices Index (CPI) to include a measure of the costs associated with owning, maintaining and living in one’s own home, known as owner occupiers’ housing costs (OOH), along with Council Tax. Both of these are significant expenses for many households and are not included in the CPI.”

The Bank of England anticipated the rise in inflation and as recently as last week’s statement on monetary policy provided the following projection:

“CPI inflation increased to 1.8% in January, and the MPC expects it to rise above the 2% target over the next few months, before peaking at around 2¾% in early 2018 and drifting gradually back down towards the target thereafter. The projected overshoot entirely reflects the expected effects of the drop in sterling. Pay growth has remained subdued, while measures of inflation expectations remain at levels broadly consistent with the achievement of the inflation target.”