UK inflation climbs to highest since 1992 at 5.5%

REUTERS: British consumer prices rose at the fastest annual pace in nearly 30 years last month, intensifying the squeeze on households and reinforcing the chances that the Bank of England will raise interest rates for a third meeting in a row. The annual rate of consumer price inflation rose to 5.5 percent in January, the highest since March 1992, when Britain was emerging from a long period of inflation-feeding high wage deals. 

This was above most economists’ forecasts in a Reuters poll for it to hold at December’s 5.4 percent rate.
Earlier this month the Bank of England predicted inflation will peak at around 7.25 percent in April, when household energy bills are due to rise by more than half.
“This morning’s upside surprise to UK inflation serves to underscore a recent global trend: higher and more persistent inflation has caught central banks on the back foot and opened the door to more interest rate hikes this year,” said Ambrose Crofton, global strategist at J.P. Morgan Asset Management.
U.S. consumer price inflation hit a 40-year high of 7.5 percent in January, while inflation in the euro zone was a record 5.1 percent. read more
The BoE has already raised rates twice since December - to 0.5 percent from 0.1 percent - and financial markets expect a further increase to 0.75 percent or one percent on March 17 after its next meeting.
Two-year British government bond yields hit their highest since 2011 shortly after the inflation data was released.
Financial markets expect BoE interest rates to rise to 2 percent by the end of 2022, though most economists say they will not get close to that level.
“There will probably then be another hike in May taking interest rates to 1.0 percent, but we think that’s where the (BoE) committee will pause as the inflation outlook becomes more benign,” said Thomas Pugh, economist at RSM UK.
The British central bank has said it does not expect inflation to return to its 2 percent target until early in 2024. The bulk of economists think inflation will fall faster.