LONDON, March 22 (Reuters) – British inflation unexpectedly rose to 10.4% in February, pushed up by higher food and drink prices in pubs and restaurants, according to official data which is likely to prompt the Bank of England to raise interest rates on Thursday.
Economists polled by Reuters had forecast that the annual consumer price inflation rate would drop to 9.9% in February from January’s 10.1% and move further away from October’s 41-year high of 11.1%.
The figures – including increases in underlying inflation measures that the BoE closely monitors – are likely to bolster the concerns of those BoE policymakers who worry that inflation will be slow to fall, even after 10 straight rate hikes.
Investors had been split on whether the central bank would pause that run after the recent upheaval in the global banking sector. But financial markets on Wednesday fully priced in a quarter-point increase to 4.25%.
“While the decision has at times over the last week looked to be on a knife edge, this inflation outturn would appear to swing it in favour of a 25-basis-point hike,” said Liz Martins, senior economist at HSBC.
Sterling rose against the dollar and the euro after the data was published and two-year British government bond yields, which are sensitive to speculation about interest rates, jumped.
The increase in inflation contrasted with a fall in the U.S. CPI rate to 6.0% in the 12 months to February. Euro zone inflation also eased last month to 8.5% but underlying price growth continued to accelerate.
The ONS said that an end to January drinks promotions in pubs and restaurants was the biggest factor behind last month’s rise, but shortages of salad items also played a role.
Overall inflation for food and non-alcoholic drinks rose to 18.0%, the highest since 1977, reflecting cold weather in southern Europe and north Africa, as well as reduced production from greenhouses in northern Europe that face high energy bills.
Higher alcoholic drink prices added 0.17 percentage points to February’s inflation rate while the increased cost of food and non-alcoholic beverages added 0.15 percentage points. Lower petrol prices helped offset some of these increases.