24th March 2023

Market Report: Surprise rise in UK inflation-Hargreaves Lansdown

Susannah Streeter, head of money and markets, Hargreaves Lansdown, comments:

"There is no respite for punishing inflation for consumers and companies, with prices becoming even hotter in February. There had been high hopes that it would finally have retreated from its double-digit heights, making a march downwards, but it has headed back towards the summit. As restaurants and hotels ratchet up prices faced with the high costs of food and labour, its feeding through to unpalatable hikes for customers. Shoppers are struggling with higher food and clothing prices too, with the cost-of-living headwinds showing little sign of dying down. It had been touch and go about whether the Bank of England would raise rates but now with consumer price inflation rising to 10.4% on the month, a 0.25% to 4,25% was announced yesterday.

There are concerns that the banking scare will end up being a disinflationary force by leading to a knock-on effect on lending which could hit the spending of companies and consumers, if loans are a bit harder to come by. The housing market is already reeling from the effects of a spike in mortgage rates and if lenders turn more cautious it could be another gut-punch. So given the potential headwinds which could whip up, the risk is that the hike now could end up pushing inflation below target further down the line. This is likely to be more of a background concern for policymakers right now, particularly as action to stem contagion in the banking sector appears to be working.

Markets have exhaled in a sigh of relief that the cavalry is standing by ready to charge in if the banking flank suffers fresh casualties. There is a growing expectation that given the chaotic events of the past fortnight, the end of painful interest rate hikes is now on the horizon in the US.

The oil price is still reflecting concern about the knock on effect of the banking turmoil on growth and is hovering around $74. However, its gained ground since last week as central banks and the US government have reinforced the pledge to take fresh action if needed.”

Hargreaves Lansdown Trends(132 articles)