British inflation rebounded in March as global oil prices soared and retailers cut discounts driven by the Coronavirus, and it is expected to continue rising as the economy reopens from closure.
UK CPI rose to 0.7% in March after slowing to just 0.4% in February, just below the median forecast of 0.8% as UK inflation is expected to pick up in the coming months due to surging home energy bills in April, and higher oil prices. Global and price comparisons a year ago when the coronavirus lockdown caused demand to plummet.
Fuel prices in March showed their biggest annual increase since January 2020. Clothing and footwear prices rose by 1.6% on the month after store closures caused by lockdown rules had caused discounting in February, the biggest increase since 2017 for the time of year. Clothing and footwear prices remained 3.9% lower than the previous year, and food prices were 1.4% lower.
The Bank of England in February expected inflation to reach 1.9% by the end of 2021, but many economists are now forecasting that it will exceed the 2% target before that date. In the medium term, the BoE sees less upward pressure on inflation due to weakness in the labor market, which is expected to continue even after the economy returns to its pre-pandemic levels
Financial markets see a 50% chance of a quarter-point rate hike by the Bank of England by the end of next year, but many economists believe that BoE will take a longer time to act.
The sterling’s decline continued for the second day in a row after the GBPUSD pair reached 1.40 levels for the first time since early March, and prices witnessed some recovery after re-testing the support level at 1.3910, and the pair is expected to continue rising, targeting the 1.3960 level. Trading below 1.3910 will be required until further price drop is contemplated.