UK inflation falls by less than expected as food prices soar by 19.1%

April 19, 2023

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UK inflation falls by less than expected as food prices soar by 19.1%

UK inflation fell by less than expected in March, continuing to remain in double figures as households came under pressure from food and drink prices soaring at the fastest observed annual rate since 1977.

The Office for National Statistics (ONS) said annual inflation as measured by the consumer prices index fell to 10.1% last month, resuming a downward trajectory after an unexpected rise to 10.4% in February. Inflation had peaked at 11.1% in October and some economists had even forecast a drop to 9.8%.

The probability of the Bank of England raising interest rates again next month jumped upwards with markets pricing in a 97% chance that policymakers will lift the base rate to 4.5% on 11 May and indicating the measure could hit 5% by the autumn.

The smaller than expected inflation drop comes amid a slow decline in global oil prices over recent months, and as the immediate impact from Russia’s invasion of Ukraine in February 2022 falls out of the estimates for the annual increase in consumer prices.

However, those falls were offset by the price of food and nonalcoholic drinks accelerating by 19.1% in the year to March, fuelled by record growth in the price of bread and cereals.

The latest published figures only add to the pressure building on the Bank of England to raise interest rates. Last month, the Bank raised rates for the 11th time in a row, by a quarter of a percentage point to 4.25%, as it looked to continue its response to persistent high inflation.

China’s economy rebounds after pandemic measures lifted

China's economy grew faster than expected in the first three months of the year, as the country begins to emerge from its tough Covid restrictions.

Compared to the same period last year, gross domestic product (GDP) has grown by 4.5%, official figures show. This key measure of economic activity was driven up by a boost in household spending and rising factory activity as the country looked to reignite its struggling economic output.

Beijing pledged to boost the world's second largest economy when it lifted coronavirus measures in December in response to criticism regarding economic performance.

Separate published data for March showed that retail sales, the main indicator of household consumption, jumped by 10.6%, compared to a year earlier as the easing of restrictions took hold.

In tandem, output from the country's factories rose by 3.9%, although this increase fell slightly short of initial forecasts. Meanwhile, there was also evidence of a strong rebound for the country's airline industry as the government resumed the processing of VISA applications.

Investors had been eagerly waiting for these newly published figures to get clues on the strength of China's recovery after the government lifted coronavirus measures.

Last year, China's GDP growth slumped to one of the lowest levels in nearly half a century due to coronavirus measures.

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