UK inflation reaches 2.3pc

LONDON: British inflation last month shot past the Bank of England´s 2 percent target for the first time since the end of 2013, potentially adding to uneasiness among some officials at the central bank about keeping interest rates near zero.

Consumer prices rose by a stronger-than-expected 2.3 percent in annual terms, the biggest increase in nearly three-and-a-half years and up sharply from 1.8 percent in January, the Office for National Statistics said on Tuesday.

Last week, one of the BoE´s policymakers voted for a rate increase, given the rise in inflation and no sign of the economic slowdown expected after Britain voted to leave the European Union.

Other policymakers said it would not take much more news about rising inflation or growth to make them follow suit.

Ruth Gregory, an economist at Capital Economics, said most BoE policymakers were likely to vote to keep rates steady for now, given the uncertainty ahead for Britain as it prepares to quit the EU.

But the latest figures would do little to reassure those BoE rate-setters who have become more concerned about higher inflation, she said.

"If the economy continues to hold up well as we expect, interest rates could be rising rather sooner than the markets have been anticipating," Gregory said in a note to clients. The increase in annual inflation from January to February was the biggest since October 2012, the ONS said.

Economists taking part in a Reuters poll had expected inflation would rise to 2.1 percent. Sterling rose against the U.S. dollar to its highest level in three weeks after the data. British government bond prices fell. Britain´s vote to leave the EU last June triggered a slide in the value of the pound, pushing up the price of imported goods that is expected to be felt over the coming years.

Furthermore, global oil prices have risen, adding to the squeeze on the spending power of households. The BoE has said it expects inflation will peak at 2.8 percent in the second quarter of next year, but many economists say it is likely to hit 3 percent.

Inflation has also accelerated in the United States and elsewhere in Europe. The ONS said transport costs, which were pushed up by rising fuel costs, were the biggest driver of inflation in February.

Also, food prices rose in annual terms for the first time in more than two-and-a-half years. Excluding oil and other volatile components such as food, core consumer price inflation rose to 2.0 percent, above the Reuters poll forecast of 1.8 percent.

Data on factory gate prices underscored the inflationary pressures still in the pipeline. Output prices rose 3.7 percent in annual terms, the strongest increase since the end of 2011.Prices paid by factories for materials and energy surged with the cost of crude oil, almost doubling from a year earlier.

In a separate data release, the ONS said the government narrowed the budget deficit in February, leaving finance minister Philip Hammond on course to make a sizeable cut to the shortfall in the 2016/17 financial year, which is about to end.

The deficit last month narrowed to 1.8 billion pounds, compared with 4.6 billion pounds in February 2016, boosted by the highest tax receipts on record for the month of February. In the first 11 months of the financial year, the deficit stood at 47.8 billion pounds, down 29.4 percent on the same period in the previous financial year.