Britain’s inflation rate surged to a three-decade peak in February, hitting 6.2% as rising energy and food costs deepened financial strain for households across the country. The Office for National Statistics published the figures on March 23, 2022, revealing that consumer price growth outpaced what economists had anticipated.
The annual inflation reading for February climbed from 5.5% in January, marking the highest level since March 1992. A Reuters survey of economists had forecast a median rate of 5.9%, with only three out of 39 respondents predicting such a sharp increase. Household energy bills were the primary contributor to the upward pressure, jumping nearly 25% compared with the same month a year earlier.
Petrol prices also drove inflation higher. The ONS noted that food prices were rising across all categories, an unusual pattern that typically affects lower-income households more severely.
On a month-over-month basis, consumer prices increased by 0.8% in February, the largest February rise since 2009.
Bank of England Under Pressure
The Bank of England has been raising interest rates in an effort to curb inflation, and the latest data adds weight to arguments for further increases. Yael Selfin, chief economist at KPMG UK, stated that the figures reinforced the case for tighter monetary policy but predicted price growth would peak relatively soon. “Provided inflation expectations can be managed and global commodity prices stabilize by next year, we should see inflation returning to the Bank of England’s 2% target by mid-2024,” Selfin said.
“This may require fewer rate rises than markets currently anticipate.” Last week, the BoE raised its forecast for inflation to peak above 8% during the April-to-June period, more than four times its target. Regulated household energy bills are scheduled to increase by more than half next month.
Producer Prices Signal Further Increases
Inflationary pressures continued at the factory gate, with manufacturers raising prices by 10.1% in the year to February, the largest annual increase since September 2008. That figure matched the median forecast in the Reuters poll. Higher producer prices typically feed through to consumer prices in the months ahead.
Finance minister Rishi Sunak is set to deliver his spring budget update later on March 23. He will aim to demonstrate that the government is helping Britons through the worst cost-of-living squeeze in decades.
The government has already announced a £9 billion package to cushion the impact of rising energy bills, but opposition parties and some Conservative MPs argue more support is needed. Sunak faces a difficult balancing act: supporting households hit by rising prices without adding excessively to government borrowing. Inflation also increases the cost of servicing the national debt, leaving less room for tax cuts or spending increases.
The broader economic outlook remains uncertain due to the war in Ukraine, which has pushed up global energy and commodity prices, and ongoing supply chain disruptions. The Bank of England expects inflation to remain well above target for the rest of 2022.
For millions of households, the squeeze is already acute. Real wages are falling as pay rises fail to keep pace with prices. Benefit payments are rising by just 3.1%, well below the inflation rate, leaving pensioners and low-income families particularly exposed. The February inflation reading confirms that the cost-of-living crisis is deepening, and Sunak’s budget update will show whether the government is prepared to do more to help those struggling most.
