Image source: Midjourney
What's going on?
Inflation’s got Britain breaking a sweat, with February’s numbers coming in hotter than expected.
What does this mean?
Bank of England (BoE) workers were probably trudging to the office after catching a glimpse of the latest UK inflation digits: turns out, prices jumped by 10.4% in February compared to last year, outdoing the 9.9% forecast and reversing the recent cooldown. And core inflation which leaves out energy costs and all the stuff Brits dig (like food, tobacco, and booze) climbed 6.2% (tweet this), also outstripping economists’ predictions. A closer look shows there really isnt much to feel warm and fuzzy about: only the annual price hikes for furniture, transport, and recreational activities cooled down in February everything else outpaced January’s numbers.
Why should I care?
Zooming out: Give me a break.
When the BoE said inflation would probably near its 2% target by the end of summer, most folks figured that meant the bank would soon hit pause on its rate-hiking moves or even reverse them. But if scorching inflation digits keep coming, the bank’s going to have to toss its medium-term plans out the window and keep jacking up rates. And that could drag the specter of a nasty recession which the UK seemed to be dodging back into the spotlight.
For markets: No sure thing.
Sure, British inflation and the USs mini-banking crisis which has prompted calls for the Federal Reserve (the Fed) to halt rate hikes soon should see the pound continuing its recent muscle-flexing against the dollar. Thatll ease at least some inflation pressure for the import-thirsty UK. But be wary of pinning too many hopes on the ever-changing foreign exchange markets: only six months ago, the pound was heading towards parity with the dollar in what seemed like a one-way bet, but now dollar weakness seems to be the consensus view. The lesson: these things are never as certain as they seem.
Originally posted as part of the Finimize daily email.
The top 2 financial news stories in 3 minutes. Join over one million Finimizers