British inflation surges to its highest level since September 2013

Treasury acknowledges families are increasingly worried about rising bills

British annual inflation jumped in February to the highest level in almost three and a half years, driven by increasing fuel costs. Photograph:  Paul Ellis/AFP/Getty Images

British annual inflation jumped in February to the highest level in almost three and a half years, driven by increasing fuel costs. Photograph: Paul Ellis/AFP/Getty Images

 

Is Britain sleepwalking into another living standards crisis? That’s certainly the fear of the unions as official data showed inflation surging to its highest level since September 2013, overtaking wage growth once again.

Driven by rises in the cost of food and transport, particularly fuel, prices shot ahead at their fastest rate in more than three years, taking consumer price inflation to 2.3 per cent in February, up from 1.8 per cent the previous month. The figure was higher than economists had been expecting, with most forecasts for about 2.1 per cent.

The treasury acknowledged families are increasingly worried about rising bills.

The government “appreciates that families are concerned about the cost of living,” but was taking action, it said, pointing to tax cuts, a rise in the Living Wage from next month and the freezing of fuel duty for the seventh year in a row.

Unfortunately, those moves will not be enough to ease the growing inflation burden for the millions of households the government has already admitted are “just about managing”.

The data also showed wage growth slowed to 2.2 per cent in the three months to January, meaning real pay is falling once again, further squeezing household incomes.

“If the government doesn’t wake up, we risk sleepwalking into another living standards crisis,” said Frances O’Grady, secretary general of the TUC.

Sterling plunge

She said it was time to scrap the pay restrictions hitting teachers, nurses and other public servants, as well as stepping up urgently-needed investment in skills and infrastructure to build the foundations for better paid jobs.

The impact of the Brexit-inspired plunge in the value of sterling – down 15 per cent since last June’s referendum – appears to be feeding through to inflation sooner than the Bank of England expected.

Sterling jumped yesterday on the prospect that the bank will be forced to bring forward the timing of a rate rise. But economists are divided on when the bank will move.

James Smith of ING believes the squeeze on incomes and expected slowdown in consumer spending will see the bank stay its hand. Although admitting the inflation surge will raise a few eyebrows on the bank’s rate setting committee, the thing that really counts is what it means for consumers, he says.

Concerns about inflation will, in his view, be outweighed by the prospect of slower growth, and he sees no change in rates before the end of next year.

James Athey of Aberdeen Investment Management, thinks the bank should bring forward a move, but fears it won’t: “Raising rates would be a proactive and forward-thinking move. Two things the Bank of England isn’t particularly well-known for.”

Soaring inflation

Mark Carney did not look best pleased when he was ambushed with a question about the soaring inflation rate at a Q&A session on banking standards yesterday morning.

The session at Threadneedle Street followed a speech by the governor of the Bank of England on ethics in banking – an extremely timely choice of subject, given the controversy over his former deputy, Charlotte Hogg.

She was forced to resign last week after a damning parliamentary report into her failure to disclose a potential conflict of interest with her brother, Quintin Hogg, who is a senior executive at Barclays. Hogg, who helped write the Bank’s own code of compliance, had failed to declare her brother’s role for four years.

Defending his handling of the crisis, Carney made it clear yesterday he had not wanted Hogg, who remains chief operating officer at the bank, to quit. And he said he was keen to “dispel the urban myth that has developed around these events”.

Hogg’s mistake was a serious one, he said, but an honest one – and in his view, it was “not a firing offence”. Indeed, he made a point last week of talking to the heads of major banks to tell them they should not feel under pressure the fire executives who had made similar “honest” errors.

“We do not run for our regulated entities a disproportionate ‘one strike and you’re out’ regime for an honest mistake. Neither explicitly or implicitly,” Carney said.

Hogg had been formally warned “in the strongest, and most public, of terms. There were consequences for her compensation. While she couldn’t forfeit a bonus, as Bank of England governors cannot receive one, she waived her salary increase this year,” Carney said.

As for inflation, one of the many other problems the governor is grappling with, his rather terse reply was that people should not “overreact to a single data point”.

Fiona Walsh is business editor of theguardian.com

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