Pound rallies after UK inflation announcement defies economists | City & Business | Finance

The UK economy’s turbulence has continued as the pond rallies but inflation defies economists’ hopeful predictions. The currency saw a 0.4 percent boost, now valued at $1.2270. But this comes as data shows inflation jumped again to 10.4 percent in February.

Inflation rose slightly from the 10.1 percent figure for January. It was previously expected that inflation will drop just below 10 percent.

As a result, inflation still stands much higher than the two percent target. This could mean the Bank of England will once again hike interest rates. 

The Office for National Statistics (ONS) said that the biggest factors causing inflation to rise were housing and household services (such as electricity, gas, and other fuels) and food and non-alcoholic beverages.

Despite the concern this will cause, some economists believe this may not be as bad as it seems.

Martin Beck, chief economic advisor to the EY ITEM Club, believes the rise is a one-off.

He said: “There’s still good reason to think that inflation will fall substantially this year, and that February’s pickup will prove be a one-off.

“The EY ITEM Club expects the CPI measure to fall to around three percent by the end of the year.”

Meanwhile, Alpesh Paleja, the CBI’s lead economist, said that “while inflation rose in February, the outlook for the months ahead is looking more benign”.

He added: “But while we expect inflation to fall back over this year, the firmness in domestic price pressures is something that the Bank of England will be keeping a close eye on.

“And despite further falls over the coming months, this year will still be a high-inflation environment for both households and businesses.”

The news will not be welcomed by Chancellor Jeremy Hunt, who unveiled his budget last week and has made tackling inflation one of his key priorities.

More to follow…