UK Inflation Flips in Surprise Reversal Upward

The UK inflation rate has broken a three-month streak of declines, rising unexpectedly to a staggering 10.4% in February, putting further pressure on households already struggling with high food and energy bills.

The surprise increase marks a break from three consecutive months of slowing price increases since the 41-year high of 11.1% reached in October.

This comes as British households continue to deal with the cost-of-living crisis, while workers across various sectors have launched mass strike action in recent months over wages and conditions.

This rise in UK inflation has only added to the economic turmoil caused by the unexpected rise in inflation, which reduces consumers’ purchasing power as their incomes are worth less in real terms.

This can lead to a reduction in the standard of living, with people being forced to cut back on everything from groceries to dining out to travel.

Cut Back on Spending Not Seen Yet

The latest data also showed the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 9.2% in the 12 months to February 2023, up from 8.8% in January.

On a monthly basis, CPI inflation was 1.1%, exceeding a forecast of 0.6%.

The largest upward contributions to the monthly change in both the CPIH and CPI rates 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, according to the UK Office for National Statistics (ONS).

The unexpected rise in inflation also led to a 0.4% rise in the Sterling against the dollar.

BOE Considers Interest Rate Hike

The government has a number of tools at its disposal to tackle inflation, including fiscal policy, monetary policy, and regulatory measures.

The Bank of England (BOE) has been aggressively hiking interest rates to combat inflation and will announce its next monetary policy decision on 11 May.

The Bank’s efforts to combat inflation have contributed to recent unrest across multiple sectors of the financial markets.

Many analysts feel the speed at which central banks have lifted interest rates has been identified as the root cause of the volatility seen in recent months.

While higher interest rates can help to control inflation, they can also lead to a slowdown in economic growth.

The BOE’s decision on interest rates will be closely watched by consumers and businesses alike.

Last week, the European Central Bank (ECB) moved to increase its own rates by 50 basis points despite storms in the banking sector, which is having a spill-over effect on the global economy.

Government Says It’s Fighting Inflation on Multiple Fronts

Speaking to the House of Lords Economic Affairs Committee, UK Finance Minister Jeremy Hunt stressed that reducing inflation from its current “dangerously high” levels remains at the top of the government’s agenda.

Hunt acknowledged arguments that the accelerated pace at which central banks have lifted interest rates in efforts to combat inflation has contributed to recent unrest across multiple sectors of the financial markets.

The fallout from the failure of Silicon Valley Bank and the emergency rescue of Credit Suisse has added a further layer of complexity to the task facing central bankers around the world.

The Economic Domino Effect

The increase in interest rates is expected to help cool down inflation, but this could also have a negative impact on consumers.

Higher interest rates mean an increase in mortgage rates, making it harder for consumers to find affordable housing.

Additionally, those with variable-rate mortgages could see their monthly payments increase, potentially putting additional pressure on household budgets.

Higher rates also make borrowing more expensive, which can have a negative impact on the economy due to reduced investment, lower consumer spending, and ultimately, slower economic growth.

Reduced economic growth can have a negative impact on consumers, with fewer job opportunities and lower wages.

It can also lead to higher prices for goods and services, as businesses struggle to maintain profitability in a slower economy.

Consumers Are Feeling the Squeeze

The UK Office for Budget Responsibility (OBR) expects real household disposable income per person, a measure of living standards, to fall by a cumulative 5.7% in 2022/23 and 2023/24 – this could indicate that the future may be uncertain and could be difficult for households to cope with.

This unexpected rise in UK inflation has put further pressure on households, as food and energy bills continue to rise.

For consumers, an uptick in inflation could mean an increase in the cost of living, as prices of essential items rise.

This could be particularly difficult for those on fixed incomes, such as pensioners, who are already struggling to make ends meet. It may also put pressure on the wages of low-paid workers, as employers struggle to cover rising costs.

There are also concerns that the increase in inflation rates could lead to a rise in the cost of goods and services, making it harder for consumers to afford the things they need.

This could lead to a decrease in consumer spending, which could ultimately have a negative long-term impact on the economy.

Economists say one potential solution for consumers is to be more mindful of their spending and make adjustments to their budgets where possible.

This means cutting back on non-essential expenses, looking for cheaper alternatives for everyday items, or finding ways to save on energy bills.

Rising inflation could also have an impact on businesses as higher costs for raw materials and energy could lead to an increase in the cost of production, which could translate to even higher prices for consumers.

It’s Not All Bad News, However

Higher the rise in UK inflation could translate to a boost in wages, as employers are forced to increase salaries in order to keep up with rising prices.

A positive impact of rising interest rates is higher returns on traditional savings and other cash investment accounts – some banks are offering great returns on short- and long-term CDs if you lock them in while rates are high.

The true long-term impact of the rising inflation rate will not be known for some time.

As the UK economy adjusts to the new reality, it is important that consumers keep an eye on their spending, in order to prepare for any potential increases in the cost of living.

Whilst the rising inflation rate can be concerning, it is important to remember that it is a normal part of the economic cycle.

It is not uncommon for inflation to rise and fall, and the UK economy is still in a strong position despite the current crisis.

Related Stories:

Inflation Outlook: What Consumers Need to Know

UK House Prices Predicted to Fall as Interest Rates Rise

Are We in a “Rolling Recession”? Rockin’ & Rollin’ Economy


The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.


Chris Lean

Chris is a Chartered Financial Planner who writes blogs and articles to simplify and explain some of the financial issues that affect UK expats. Subjects include; hot topics, regulation and the ever-changing world of finance.

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