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British Inflation Tops 2% Target For First Time In More Than Three Years

‘If the economy continues to hold up well as we expect, interest rates could be rising rather sooner than the markets have been anticipating.’ – Ruth Gregory, Capital Economics

British inflation surpassed the Bank of England’s target of 2% last month, official figures released on Tuesday showed. The Office for National Statistics reported that consumer prices advanced 2.3% in February, following the preceding month’s 1.8% increase and surpassing analysts’ expectations for a 2.1% climb. Soaring inflation and the weak British Pound may force the Central bank to raise interest rates in the upcoming months. Last week, Kristin Forbes, an external member of the BoE’s MPC, was the only one to vote for a rate hike at the March policy meeting. However, other members signaled they could step on the path of rate increases anytime soon if consumer prices continue rising and the economy maintains a strong foothold. Back in February, the annual rate of inflation in the UK rose above the BoE’s target for the first time in more than three years, but the Governor Mark Carney claimed that it was important not to overreact to just one data point. Meanwhile, the core annual inflation rate came in at 2.0% in February, compared to January’s 1.6% gain, while analysts anticipated an increase of 1.7%. The rise in both headline and core inflation was driven by the weak Pound, which also provided significant support to British manufacturers, making them more competitive in overseas markets.

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