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Surprise inflation rise causes interest rate headache

Author: ICAEW Insights

Published: 22 Mar 2023

Official data reveals that UK inflation rose for the first time in six months in February amid vegetable shortages, leaving the Bank of England with a tough decision on interest rates.

The inflation figures released on Wednesday 22 March 2023 by the Office for National Statistics (ONS) reported that the Consumer Prices Index (CPI) rose by 10.4% in the 12 months to February 2023, the first increase since October 2022 and up from 10.1% in January. Core inflation – which strips out volatile items such as food, energy, alcohol, and tobacco – stood at 6.2% in the year to February, up from 5.8% in the previous month.

February’s increase was mainly driven by rising alcohol prices in pubs and restaurants following discounting in January and increases for some salad and vegetable produce as bad weather caused some shortages and rationing. This upward pressure was partly offset by the continued fall in fuel prices. 

The annual inflation rate for restaurants and hotels was 12.1% in February, up from 10.8% in January, and the highest rate since July 1991. The main driver behind this increase came from restaurants and cafes, where prices rose by 11.4% in February, up from 9.4% in the year to January. The biggest upward pressure came from price increases for alcohol served in restaurants, cafes and pubs.

Food and non-alcoholic beverage prices rose by 18.2% in the year to February, the highest rate for over 45 years, and up from 16.8% in January. This increase was driven by price movements from eight of the 11 categories. The largest upward effect came from vegetables, where prices rose in the month to February 2023 by more than a year earlier. This reflected shortages of salad produce and other vegetables, reportedly because of bad weather in southern Europe and Africa, and the impact of higher electricity prices on produce grown out of season in greenhouses in the UK and northern Europe.

In contrast, the annual inflation rate for transport eased slightly from 3.4% in January, to 3.1% in February 2023, the lowest rate since February 2021, the eighth successive decline and down from the recent peak of 15.2% in June 2022. 

On a monthly basis, CPI rose by 1.1% in February 2023, up from 0.8% in February 2022. The largest upward contributions came from restaurants and cafes, food, and clothing, partially offset by downward contributions from recreational and cultural goods and services (particularly recording media), and motor fuels.

Responding to the latest UK inflation figures, Suren Thiru, Economies Director for ICAEW, said: “This surprising rise in inflation highlights the continued crisis facing households and the damaging squeeze on firms’ ability to invest and operate at full capacity.

“Inflation should resume its downward trajectory in March, when the strong base effect from the comparison to March 2022 – when Russia’s invasion of Ukraine sent fuel prices skyrocketing – is expected to lower the headline rate.

“While inflation remains a key risk, we would caution the Monetary Policy Committee against raising interest rates this week given the fragility in financial markets. Pushing ahead with raising rates in the current climate would risk further market turbulence and weaken our economic prospects.”

For further information, read the ONS Consumer price inflation


A closer look at the impact of inflation on people, businesses, accountancy and the wider economy, bringing together the best expert opinion, data and analysis from ICAEW and its members.

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