“UK annual headline CPI coming in slightly above expectations at 5.5%, beating the consensus 5.4% reading by 0.1%. While not a massive overshoot in itself, the higher than expected print will likely continue to fan concerns in some quarters that the Bank of England may yet raise interest rates by 50bps at its forthcoming March Monetary Policy Committee meeting. However, the BoE may be less concerned about today’s modest overshoot than the market necessarily is, given that it upgraded its inflation forecast this month to see CPI now peaking in April at around 7.25%. If rates were going to be raised by 50bps at a single meeting then the February meeting presented the ideal opportunity to do so, given that such a move could have been hung on the revised forecast.
Of most concern to the MPC is probably that the main downside contributions to today’s number came from restaurants and hotels (likely the result of the renewed lockdown restrictions imposed in December) and transport (lower fuel prices), downside influences that are likely to be temporary only - fuel prices have already moved in the opposite direction. However, the suggestion is that stronger evidence that CPI is in danger of breaching the April forecast will be needed before we see a majority vote on the MPC for a 50bps rise, and with the next CPI release set to come after the March MPC meeting, on balance another 25bps interest rate rise looks the most likely outcome next month.”