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Food prices in UK rise at fastest rate in 45 years; March figure above 10%

March figure sticks above 10%, lifting prospect of interest rate hike

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Bloomberg

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Britain’s inflation rate remained stubbornly high in double digits in March, another surprisingly strong reading that will strengthen the case for more interest rate rises at the Bank of England.

The Consumer Prices Index rose 10.1 per cent from a year ago, driven by the strongest increase in food prices in 45 years, the Office for National Statistics said Wednesday. Economists had expected a slowdown to 9.8 per cent.

Investors quickly moved to price in further rate hikes from the Bank of England, continuing the quickest tightening cycle in four decades. Policy makers led by Governor Andrew Bailey had signaled a pause was possible if inflationary pressures subsided, but today’s reading suggests that prices in the UK have more momentum than in the US or eurozone.

Money-market traders priced a peak BOE interest-rate of more than 5 per cent this cycle, the highest this year. They also expect two consecutive 25-basis-point increases in May and June, according to swaps tied to the meeting dates. The pound edged higher against the dollar and gilts fell as the market adjusted to the prospect of steeper rate increases. Sterling jumped as much as 0.4 per cent to $1.2469 while the yield on two-year notes rose 13 basis points to 3.82 per cent.

“The Bank of England’s job is not yet done,” said Kitty Ussher, chief economist at the Institute of Directors.

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First Published: Apr 19 2023 | 11:32 PM IST

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