UK Inflation Rises Sharply in March
Surging petrol prices, costlier air travel and last year’s VAT rises have been blamed for a jump in the inflation rate to 3.4% in March.
The Office of National Statistics (ONS) made the claim after their figures revealed that Consumer Prices Index (CPI) inflation increased from 3% in February to 3.4% in March ― the steepest rise since January.
The inflation rise was greater than many analysts had expected, and is now one of the highest rates in Europe, way above the Bank of England’s government-set target of 2%.
March also saw a sharp jump in the Retail Prices Index (RPI) inflation, which factors in the cost of housing ― it climbed to 4.4 % from 3.7% in February. RPI is particularly important for employers, as it is often used to determine wage increases.
Despite the hike in prices, many analysts said they expected price pressures to ease this year and inflation to fall. According to the Bank of England, inflation is expected to drop back towards the target rate of 2% in the coming months, meaning interest rates are likely to be kept low to stimulate growth.
Commenting on the figures, the Confederation of British Industry’s chief economic adviser, Ian McCafferty, said the combination of rising raw material prices and weak sterling was pushing up inflationary pressure in the UK.
“But it’s still likely that weak demand and excess capacity in the economy will come to dominate in pushing inflation down in the coming months,” he said.
Business service firms RSM Tenon’s director, Martin Austin, said most small firms would be unaffected by the rise in inflation in the short-term.
“However, if growth is sustained over a longer period, businesses are likely to see increased borrowing rates and higher wage costs — employees will find that their salaries don’t go as far so there will be demand for pay rises,” he said.
“For now, though, the more immediate concern is the General Election, and the possibility of a post-election budget,” added Austin. “This is likely to bring in severe cuts which could impact more generally on the economy.”
The British Chambers of Commerce said it would be wrong for the Bank of England to “overreact” to an inflationary surge that was likely to prove temporary.
“One key issue for the Monetary Policy Committee [MPC] is a new Government’s ability to produce a more credible plan for reducing the unsustainable deficit over the medium-term,”
said BCC chief economist, David Kern.
“If a plan can be presented shortly after the election, it would be easier for the MPC to maintain low interest rates for a longer period, making it possible for businesses to lead and sustain the recovery.”