The fall in the value of the pound is increasing the cost of food and fuel, pushing inflation to the highest rate since September 2013.
The Office for National Statistics (ONS) reported on Tuesday that the UK’s consumer prices index (CPI) reached 2.3% in February, following a 1.8% rise in January.
This takes the rate above the Bank of England’s 2% target for the first time since 2013.
Inflation has been steadily increasing since late 2015. Higher transport costs, particularly fuel prices, contributed most to the overall increase in the rate last month. At the same time, food prices recorded their first annual increase for more than two and a half years — up 0.3% compared to February 2016.
Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said the latest CPI report confirms that UK prices are “on an upward trajectory”.
“The decline in the value of sterling, together with rising oil and other commodity prices, is likely to maintain the upward pressure on consumer prices in the coming months,” Thiru added.
The BCC forecasts that inflation will remain above 2% for some time, peaking at close to 3% in the second half of 2018.
Thiru warned that rising inflation is a threat to the UK’s growth prospects.
“Businesses continue to report that the rising cost of raw materials are squeezing margins, forcing many firms to raise their prices. Higher inflation is also likely to materially squeeze consumer spending in the coming months as price growth increasingly outpaces earnings growth,” he said.
“While government has little direct influence on currency movements or global commodity prices, it must do more to ease the burden of up-front costs and taxes faced by businesses, which is weighing heavily on investment decisions and growth.”
Another business group, the CBI, noted that although inflation has overtaken the Bank of England’s 2% target, “it is still relatively low by historical comparison”.
Anna Leach, head of economic intelligence at the CBI, also cited data pointing to rising costs for businesses, with input prices up 19% year-on-year.
Still, there was good news in the latest CBI Industrial Trends Survey, also released on Tuesday, which showed that export order books have risen to the highest level in over three years.
What’s more, expectations for growth have climbed to the highest level for more than 20 years.
In all, 45% of the 423 manufacturers surveyed expect output to grow over the next three months, while 10% expect a fall. This leaves a rounded balance of +36% — the highest since February 1995.