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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK inflation hits 7%; Yellen warns of global growth hit – as it happened

United Kingdom Grant Fitzner Office for National Statistics
A trolley of groceries in the supermarket, where food prices are risng.
Food and non-alcoholic drink prices are rising at the fastest rate since 2011 Photograph: Hesther Ng/SOPA Images/REX/Shutterstock

Closing post

Time to wrap up... here are today’s main stories, first on inflation:

...Russia...

And also:

Goodnight. GW

Updated

US Treasury secretary Janet Yellen’s warning to countries not to undermine sanctions against Russia came hours after data showed China‘s trade with Russia jumped by more than 12% in March from a year earlier.

That outpaced the increase in Beijing’s trade with the rest of the world, according to Chinese customs data.

My colleague Phillip Inman explains:

Shipments to and from Russia increased 12.76% in March to $11.67bn, Chinese customs data showed on Wednesday, slowing from 25.7% growth in February, when Russia launched its invasion of Ukraine.

The decline in trade with Russia was less severe than the decline with other countries, fuelling concerns that China has maintained strong links with Moscow despite the atrocities perpetrated by the Russian military in Ukraine.

Growth in trade during March with the rest of the world was only 7.75%, after it increased to $505bn.

Beijing has refused to call Russia’s action an invasion and has repeatedly criticised what it says are illegal western sanctions to punish Moscow.

European market close

European stock markets have closed little changed on the day, as concerns over rising inflation and slowing growth occupy investors’ minds.

The FTSE 100 index of blue-chip shares finished just 4 points higher at 7,580, with airline group IAG (+3.8%) leading the risers.

Michael Hewson of CMC Markets explains:

British Airways owner IAG shares are doing well after optimistic outlooks from its US peers Delta Airlines and American Airlines. Delta said it had seen record bookings amidst optimism that it would be profitable in each remaining quarter of the current financial year.

Supermarket shares slipped, though, with Tesco down 2% after it warned that rising prices would hit its profits, and rival Sainsbury off 2.4%.

Major housebuilders lost around 2%, after the government announced that more than 35 homebuilders have agreed to put £2bn towards fixing unsafe cladding on high-rise buildings in England identified in the aftermath of the Grenfell Tower disaster.

Michael O’Shea, construction partner at the law firm Gowling WLG, says the deal is a “significant step” in re-dressing the overall issue.

It will be interesting to see how measures around other fire safety defects - such as defective compartmentation, fire doors and other non-cladding defects which allow smoke and flames to spread – are pro-actively approached by the industry moving forwards.

Whether the insurance industry now follow suits is also a key factor - ensuring that the cause and effect nature of the entire process is fully appreciated is a significant dynamic here.”

The pan-European Stoxx 600 index ended the day flat, with Italy’s FTSE MIB 0.2% higher, but Germany’s DAX slipping 0.35% as forecasters predicted a sharp recession if Germany introduced an immediate ban on Russian energy.

Updated

Annual inflation in Russia accelerated to 17.49% as of April 8, its highest since February 2002 and up from 16.70% a week earlier, the economy ministry says, following the latest rise in prices last week:

Russian consumer prices up nearly 11% year-to-date

People walk in Red Square, Moscow, late last month.
People walk in Red Square, Moscow, late last month. Photograph: Maxim Shemetov/Reuters

Consumer prices in Russia have jumped almost 11% so far this year, new inflation data shows.

That’s despite a softening in inflationary pressures last week, as the rouble recovered from its slump when the Ukraine war began, as Reuters explains:

Weekly inflation in Russia slowed to 0.66% in the week to April 8 from 0.99% a week earlier, taking the year-to-date increase in consumer prices to 10.83%, data from statistics service Rosstat showed on Wednesday.

In the same period a year ago, consumer prices rose 2.72%.

That follows a 7.6% jump in prices in March along, the biggest monthly increase since 1999.

Russia’s central bank said last Friday that inflationary pressures had eased, as it cut interest rate from 20% to 17%.

But price pressures are still intense.

Earlier today Alexei Kudrin, the head of Russia’s audit chamber, predicted that inflation could reach between 17% and 20% this year.

Analysts polled by Reuters late last month forecast 2022 inflation to accelerate to around 23.7%, its highest since 1999.

The ABN AMRO logo is seen at the headquarters in Amsterdam, Netherlands

The Dutch bank ABN Amro has apologised for its predecessors’ role in the slave trade, after it commissioned an investigation into the “untold suffering” it caused.

The investigation, by academics at the International Institute of Social History (IISH), an Amsterdam archive, found that two of ABN Amro’s predecessor companies were involved in either financing the operation of slave plantations directly, or underwriting the trade in products produced by slaves.

The global Black Lives Matter protests that followed the murder of George Floyd in the US in 2020 prompted many historical institutions to re-examine their own links to slavery and the slave trade.

Here’s the full story:

World Bank, IMF, WFP and WTO call for urgent action on food crisis

The heads of the World Bank, the IMF, the World Food Programme and the World Trade Organisation have called for urgent coordinated action on food security.

As the Ukraine war threatens to push millions more people into poverty, David Malpass, Kristalina Georgieva, David Beasley and Ngozi Okonjo-Iweala say the surge in the prices of staple foods, and supply shortages, are increasing pressure on households worldwide.

They urge the international community to help vulnerable countries, including though emergency food supplies, financial support to households and countries, and grants to cover urgent financial neeeds, as well as increasing agricultural production and ensuring open trade.

In a joint statement, Malpass, Georgieva, Beasley and Okonjo-Iweala say:

The threat is highest for the poorest countries with a large share of consumption from food imports, but vulnerability is increasing rapidly in middle-income countries, which host the majority of the world’s poor. World Bank estimates warn that for each one percentage point increase in food prices, 10 million people are thrown into extreme poverty worldwide.”

“The rise in food prices is exacerbated by a dramatic increase in the cost of natural gas, a key ingredient of nitrogenous fertilizer. Surging fertilizer prices along with significant cuts in global supplies have important implications for food production in most countries, including major producers and exporters, who rely heavily on fertilizer imports. The increase in food prices and supply shocks can fuel social tensions in many of the affected countries, especially those that are already fragile or affected by conflict.”

Yellen: more worried about recession prospects in Europe than US

US treasury secretary Janet Yellen has also warned that global economic growth will take a hit from Russia’s war in Ukraine.

Yellen noted that it had sent prices for food, energy and some metals sharply higher, fueling existing inflationary pressures (as we’ve seen in the UK today).

Reuters has more details:

“It is likely to be a hit to global growth,” Yellen told an event hosted by the Atlantic Council think tank, adding that she “worried more about recession prospects” in Europe, which was most vulnerable to disruptions in energy supplies from Russia.

The United States had a “very strong economy, and a very strong labor market,” Yellen said, but also faced “strong, strong wage pressures,” inflation and the potential for further supply chain pressures due to COVID-19 lockdowns in China.

US Treasury Secretary Janet Yellen will convene a meeting of top international financial officials next week to address the global food security crisis, following Russia’s invasion of Ukraine.

Yellen says she was deeply concerned about the impact of Russia’s war in Ukraine on global food prices and supply, as soaring prices threaten many millions of people with severe hunger.

Yellen said she would convene other leaders during next week’s Spring Meetings of the International Monetary Fund and World Bank to discuss possible solutions to help the poorest, who spend a larger share of their income on food.

Yellen also issued a warning to countries who haven’t cut financial ties with Russia or are seeking to undermine sanctions imposed due to the war in Ukraine.

In prepared remarks delivered at an event hosted by the Atlantic Council, she said:

“While many countries have taken a unified stand against Russia’s actions and many companies have quickly and voluntarily severed business relationships with Russia, some countries and companies have not.

”Let me now say a few words to those countries who are currently sitting on the fence, perhaps seeing an opportunity to gain by preserving their relationship with Russia and backfilling the void left by others. Such motivations are short-sighted.”

And in a call to China to help end the Ukraine war, she said:

“The world’s attitude towards China and its willingness to embrace further economic integration may well be affected by China’s reaction to our call for resolute action on Russia.”

Updated

The IMF is worried about the risks posed by decentralized finance (DeFi), the crypto-based financial networks that operate without a central intermediary.

In a new blogpost, IMF staff warn that the fast-moving fintech sector is creating challenges for effective regulation and supervision.

It cites decentralized finance, which uses secure distributed ledgers to handle transactions. Such networks have been targeted by cybercriminals, and the lack of deposit protection means customers often rush to take their money out when a cyberattack occurs.

The IMF says:

Also known as DeFi, it offers the potential of delivering more innovative, inclusive, and transparent financial services thanks to greater efficiency and accessibility.

However, DeFi also involves the buildup of leverage, and is particularly vulnerable to market, liquidity, and cyber risks. Cyberattacks, which can be severe for traditional banks, are often lethal for these platforms, stealing financial assets and undermining user trust.

The lack of deposit insurance in DeFi adds to the perception of all deposits being at risk. Historically, large customer withdrawals often follow news of cyberattacks on providers.

The IMG also points out that FinTech can push banks to innovate to remain relevant to customers, by disrupting core financial services.

For consumers, it means potentially wider access to better services. Such changes also raise the stakes for regulators and supervisors—while most individual FinTech firms are still small, they can scale up very rapidly across both riskier clients and business segments than traditional lenders.

Sky News’ Ed Conway has analysed why the energy price shock has driven inflation up faster than economists have forecast:

Roman Abramovich has also had a €100m Riviera mansion once owned by the Duke and Duchess of Windsor seized, as French authorities crack down on Russian oligarchs following the invasion of Ukraine.

French news site The Local explains:

The property belonging to Russian oligarchs on the EU sanctions list has been confiscated or frozen. Portable property such as yachts and helicopters has been seized, while property has been frozen so that the owners cannot rent or sell it.

In total 33 properties – mostly on the Riviera or in Paris – have been frozen, while four yachts and six helicopters have been confidcated.

Among the properties listed is the Château de Croë, on the Cap d’Antibes, which is owned by Roman Abramovich, who also owned Chelsea football club in the UK. Its estimated value is €100m.

Bank of Canada lifts interest rates and starts QT

The Bank of Canada building in Ottawa, Ontario, Canada.
The Bank of Canada building in Ottawa, Ontario, Canada. Photograph: Chris Wattie/Reuters

The Bank of Canada has raised Canadian interest rates and begun unwinding its pandemic stimulus programme, as inflationary pressures rise across the globe.

The BoC lifted its policy rate by 50 basis points, from 0.5% to 1%, as it tries to get to grips with rising prices.

Inflation in Canada hit 5.7% in February, well over the BoC’s target of 1%-3%, prompting today’s hike -- the first half-point rise in two decades.

The BoC has also decided to start the process of ‘quantitative tightening’ this month, which means unwinding the QE programme under which it bought government bonds.

It will no longer re-invest money when its Government of Canada bonds mature. Those bonds will no longer be replaced and, as a result, the size of the balance sheet will decline over time.

The BoC also lifted its inflation forecast, saying CPI inflation is now expected to average almost 6% in the first half of 2022, and warning it could become entrenched.

It explains:

Russia’s ongoing invasion of Ukraine is causing unimaginable human suffering and new economic uncertainty. Price spikes in oil, natural gas and other commodities are adding to inflation around the world. Supply disruptions resulting from the war are also exacerbating ongoing supply constraints and weighing on activity. These factors are the primary drivers of a substantial upward revision to the Bank’s outlook for inflation in Canada.

The war in Ukraine is disrupting the global recovery, just as most economies are emerging from the impact of the Omicron variant of COVID-19. European countries are more directly impacted by confidence effects and supply dislocations caused by the war. China’s economy is facing new COVID outbreaks and an ongoing correction in its property market. In the United States, domestic demand remains very strong and the US Federal Reserve has clearly indicated its resolve to use its monetary policy tools to control inflation.

Updated

Draconian lockdown measures introduced in China to combat outbreaks of Covid-19 mean global oil demand will not be as high as expected, the International Energy Agency has said, helping cushion the impact of the dwindling supply from Russia.

In its monthly report on world oil markets, the IEA said it expected Russia’s output to fall by 1.5m barrels per day (bpd) in April, with the decline accelerating to 3m bpd from May, as buyers either voluntarily boycott Kremlin-controlled supplies or hold back because of uncertainty over sanctions.

The projection indicates that as much as 3% of global supply could be lost by the middle of spring as a result, given Russia’s position as the world’s second-largest oil producer. But there was unlikely to be a “sharp deficit” in global oil markets, the IEA said, thanks to multiple factors mitigating the impact of lost Russian flows.

The most recent is the imposition of what it called “stringent” anti-Covid restrictions in China, where the one-party state has put all 26 million people in Shanghai into lockdown. Weaker-than-expected demand in countries of the OECD – a group of mostly developed nations – added to the decline, the Paris-based agency said.

As a result, the organisation lowered its global oil demand forecast by 260,000 bpd compared with last month’s prediction and now expects the world to need an average of 99.4m bpd in 2022.

The report also showed a drop in oil inventories, as energy stocks fell even before the Ukraine war:

Deutsche Bank: UK inflation to cross 9% in April

Back on UK inflation.... and Deutsche Bank’s economist Sanjay Raja has predicted that the Consumer Prices Index will hit 9% in April.

The Bank of England had forecast inflation would reach 8% in April, due to the 54% increase in the UK’s energy price cap. But Raja points out that inflationary pressures are broadening.

As flagged earlier, food and non-alcoholic beverages prices are up 5.9% over the last year, clothing and footwear prices jumped 9.8%, and petrol was up over 30%.

Raja says:

Today’s inflation report would have done little to quell any inflation fears. On the contrary, inflation fears are now likely to pick up further following today’s report.

Overall, the March inflation data continued to confirm one important feature of the current inflationary environment: broad-based price pressures. Indeed, inflation is now everywhere. Price rises are broad-based and gaining momentum.

What next? We now think CPI will cross 9% y-o-y in next month’s April data.

That would mark the highest annual rate we’ve ever seen on record (for CPI). And in October, we see headline CPI pushing above 9.5% y-o-y. We expect headline CPI to average 8.3% y-o-y for 2022 (and 9% y-o-y over the remainder of the year).

The Netflix office building in Hollywood, California.
The Netflix office building in Hollywood, California. Photograph: Robyn Beck/AFP/Getty Images

Russian Netflix users are suing the streaming firm for suspending its service as a result of Vladimir Putin’s invasion of Ukraine.

Netflix, which has only about 1 million subscribers in Russia, suspended its services in March and has halted the development and acquisition of all Russian-made or commissioned TV shows and films.

A law firm has launched a class action legal action against Netflix, which has more than 220 million global subscribers, on behalf of Russian users who believe the decision to block access is a violation of their rights.

The subscribers, who pay 599-799 roubles a month (£5.55-£9.26) to access content, from Bridgerton to Don’t Look Up, are demanding 60m roubles (£560,200) in compensation.

Jersey court freezes $7bn of assets connected to Abramovich

More than $7bn of assets thought to be linked to Roman Abramovich have been frozen by authorities in the English Channel tax haven of Jersey.

Police have also searched properties linked to Abramovich, in the latest crackdown on offshore wealth held by sanctioned Russian billionaires.

Abramovich was sanctioned by the UK, and also the EU, last month over his links to Vladimir Putin.

Jersey’s Law Officers’ Department said.

Search warrants were executed by the States of Jersey Police on Tuesday 12 April 2022 at premises in Jersey suspected to be connected to the business activities of Roman Abramovich.

The Royal Court also imposed a formal freezing order on 12 April, known as a saisie judiciaire, over assets understood to be valued in excess of US$7 billion which are suspected to be connected to Mr Abramovich and which are either located in Jersey or owned by Jersey incorporated entities.

Germany would face a sharp recession if gas supplies from Russia are suddenly cut off, the country’s leading economic institutes warned today.

A sudden stop in Russian energy supplies would slow economic growth to 1.9% this year and lead to a contraction of 2.2% in 2023, five of Germany’s top economic research institutes warned.

Stefan Kooths, vice-president of the Kiel Institute for the World Economy, said it would knock out €220bn of growth.

“If gas supplies were to be cut off, the German economy would undergo a sharp recession.”

“You can also calculate it like this: Germany would forfeit €220bn in economic output in 2022 and 2023, which is equivalent to 6.5 per cent of GDP.

The institutes also cut their baseline 2022 growth projection for the economy to 2.7% from 4.8%, and forecast 2023 growth of 3.1%.

Berlin has been resisting pressure to immediately stop Russian energy imports, following the Ukraine war.

The FT says:

The new forecast released on Wednesday was more pessimistic than most earlier economic studies and could give cover for Chancellor Olaf Scholz’s government to push back against calls for an immediate ban on Russian oil and gas imports, on which Germany is heavily reliant.

US producer price inflation has hit a record high, as American manufacturers and services companies continue to lift their prices sharply.

The US producer prices index rose 11.2% over the last year in March, the fastest increase since the data was first calculated in November 2010.

Good prices rose 2.3% in March alone, driven by a 5.7% increase in energy products - with diesel and home heating oil both up by a fifth in the month.

The Bureau of Labor Statistics explains:

Leading the March increase in the index for final demand goods, diesel fuel prices jumped 20.4 percent. The indexes for gasoline, fresh and dry vegetables, jet fuel, iron and steel scrap, and electric power also moved higher

These producer prices will feed into consumer inflation (as in the UK), keeping the cost of living pressure high.

Rising interest rates are also weighing on the US housing market.

Mortgage applications to purchase a home rose 1% last week, but were 6% lower than the same week one year ago.

With borrowing costs up, applications to refinance a home loan fell 5% week-on-week, and were 62% lower than a year ago.

JPMorgan takes $524m hit from Russia; sets aside $900m over inflation and Ukraine

Wall Street banking giant JP Morgan has set aside around $900m to cover potential losses from high inflation and the Ukraine war.

In its first quarter results, JP Morgan reported a 42% drop in net income to $8.28bn, below forecasts, as dealmaking slowed following Russia’s invasion of Ukraine.

The figures also show a $524m hit from the market fallout caused by the Ukraine conflict.

JP Morgan says was caused by funding spread widening and credit valuation adjustments, relating to increases in commodities exposures and markdowns of derivatives receivables from Russia-associated counterparties.

Chief executive Jamie Dimon struck a cautious note, saying:

We remain optimistic on the economy, at least for the short term – consumer and business balance sheets as well as consumer spending remain at healthy levels – but see significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine.”

JP Morgan said its provision for credit losses was $1.5bn, reflecting:

..a net reserve build of $902m driven by increasing the probability of downside risks due to high inflation and the war in Ukraine, as well as accounting for Russia-associated exposure in CIB [corporate and investment banking] and AWM [asset and wealth management], and $582m of net charge-off.

Dimon added that JP Morgan had helped governments to implement economic sanctions of “unprecedented complexity” during the last quarter.

While our company will continue to deal with this global turmoil, our hearts go out to the extreme suffering of the Ukrainian people and to all of those affected by the war.

Updated

Larry Elliott: Stagflation looks a racing certainty as worse to come for UK households

High inflation is going to stick around for a while, our economics editor Larry Elliott warns, meaning the UK is likely to suffer stagflation, or even recession.

While in the summer there should be some reduction in the annual rate, there is likely to be another rise in the autumn when the energy price cap is again adjusted. Inflation will remain at 7% or above for the rest of 2022.

The strength and persistence of inflation creates economic and political problems for the government. Stagflation – a toxic combination of stagnant output and rising inflation – is a racing certainty but there is also a risk of an intensifying squeeze on living standards caused by prices rising faster than wages, driving the economy into recession.

The jump in UK inflation to 7% in March means the Bank of England faces a tricky dilemma on interest rates.

The BoE is expected to raise borrowing costs again next month, from 0.75% to 1%, as CPI continues to surge over its 2% target.

The Bank is worried about ‘second-round’ effects - where rising inflation expectations lead firms to lift profit margins, or workers to seek higher pay deals.

But with the economy already slowing, higher interest rates also increase the risk of a recession.

Urvish Patel, associate economist for Macroeconomic Modelling and Forecasting at the NIESR research institute, says the Bank has an ‘increasingly difficult’ choice.

Our measure of underlying inflation, which excludes extreme price movements, increased to 5.6% in March from 5.1% in February.

NIESR forecasts annual consumer price inflation will peak in 2022 Q3 above 8% as the direct impact of the war in Ukraine, as well as second-round effects, feeds through to consumer prices. The Bank of England’s dilemma is becoming increasingly difficult as more frequent rate hikes risk tipping the UK into a recession whilst a more gradual approach could cause macroeconomic instability.”

Effects of economic sanctions on Russia starting to be felt

Liquid fuel prices have more than doubled over the last year, up 113.9%, driving up costs for families who rely on oil to heat their homes.

With motor fuel up 30%, and raw material prices paid by manufacturers surging, March’s inflation data is revealing the economic impact of the Russian invasion of Ukraine and the ensuing sanctions.

Jonas Keck, economist at the CEBR, says:

Whilst the UK is less dependent on Russian energy imports than other European countries, changes in world demand still feed through to British prices. This can already be seen in the March figures, highlighted by the surging price of liquid fuels.

Keck also warns that the cost of living crisis will worsen, as real regulay pay isn’t keeping up with price growth, and chancellor Rishi Sunak’s fiscal support package fell short of expectations.

Tesco doubled pre-tax profits to more than £2bn last year but has warned on profits for this year as it faces a battle to “keep the cost of the weekly shop in check” amid soaring inflation driving up costs and squeezing household budgets.
Total revenues for the UK’s biggest supermarket, which proved to be a pandemic winner by taking a share from rivals and boosting online sales, rose by 6% to £61.3bn as pre-tax profits jumped from £1.1bn to £2.2bn in the year to the end of 26 February. However, the company warned of “significant uncertainties” weighing on the business, including whether customer shopping behaviour would change as the nation moves out of the coronavirus pandemic, cost inflation, and investment to keep prices low versus budget operators, such as Aldi and Lidl.

Shares in Tesco have dropped 4.5% this morning.

Updated

Full story: inflation hits 7% in March as Britain’s cost of living soars

Households in Britain have come under renewed pressure from the soaring cost of living after the official inflation rate reached 7% last month amid a record increase in petrol and diesel prices.

Figures from the Office for National Statistics showed the latest rise in the consumer prices index was the fastest in three decades, coming a month after the barometer for rising living costs jumped by 6.2% in February.

With broad-based price rises across the economy, the biggest increase came in the cost of filling up at the pump after Russia’s invasion of Ukraine sent the global oil price close to record levels amid concerns over supply disruption and sanctions.

Average petrol and diesel prices soared to record highs of 160.2p and 170.5p a litre respectively, rising by more than 30% over the past year – the biggest annual increase since 1989.

Restaurants and hotel prices also rose steeply in March, having been unavailable last year during lockdown, while there were also rises across a number of different types of food as the cost of a weekly shop increases.

Here’s the full story:

Updated

Student loans interest rates to hit up to 12% then fall in 'wild swings'

The government needs to act quickly to avoid interest rates on post-2012 student loans for graduates soaring to 12% in England and Wales, according to the Institute for Fiscal Studies.

Based on today’s RPI inflation figure, the IFS said graduates earning more than £49,000 will see interest rates of 12% on their loans while lower earners face 9% rates, from September this year.

The IFS says the rise will mainly affect higher earning graduates because they are more likely to repay their loans in full, while lower earners will have their remaining balances wiped 30 years after graduation.

A graduate earning more than £49,000 will have to repay an extra £3,000 on student loan balances of £50,000, the IFS estimates. But it says graduates face a roller-coaster of steeply rising and falling interest rates over the next few years.

Ben Waltmann, senior research economist at the IFS, said:

“Unless the government changes the way student loan interest is determined, there will be wild swings in the interest rate over the next three years. The maximum rate will reach an eye-watering level of 12% between September 2022 and February 2023 and a low of around zero between September 2024 and March 2025.

“There is no good economic reason for this. Interest rates on student loans should be low and stable, reflecting the government’s own cost of borrowing. The government urgently needs to adjust the way the interest rate cap operates to avoid a significant spike in September.”

The IFS’s briefing note explains how RPI inflation (which hit 9% in March) is used to set the interest on student loans.

The interest rate cap is meant to prevent student loan interest rising above prevailing market rates on commercial loans. But it operates with a six-month lag, between student loan interest rates exceeding the cap and the student loan interest rate actually being reduced.

The briefing note warns that the interest rate rollercoaster will cause problems.

The way the interest rate cap currently operates disadvantages borrowers with falling debt balances for no good reason.

Perhaps more importantly, sky-high interest rates may put some prospective students off going to university; some graduates will likely feel compelled to pay off their loans even when this has no benefit for them.

Updated

UK house prices have also continued to their surge higher.

The average house price increased by 10.9% over the year to February 2022, up from 10.2% in January 2022.

Prices rose by 0.8% in the month, following a 1.1% monthly rise in January, despite the prospect of interest rate rises to cool inflation, pushing up borrowing costs.

More details:

  • The average UK house price was £277,000 in February 2022, which is £27,000 higher than this time last year.
  • Average house prices increased over the year in England to £296,000 (10.7%), in Wales to £205,000 (14.2%), in Scotland to £181,000 (11.7%) and in Northern Ireland to £159,000 (7.9%).
  • London continues to be the region with the lowest annual growth at 8.1%.

Rent inflation highest since 2016

Rents are rising at the fastest pace in almost six years, adding to the pressures on housesholds.

The ONS reports that private rental prices paid by tenants in the UK increased by 2.4% in the 12 months to March 2022, which is the largest annual growth rate since July 2016.

But rents jumped by 3.3% if London is excluded, the ONS say:

London’s rental price growth in March 2022 (0.4%) remains the lowest of any of the English regions.

This reflects a decrease in demand, with remote working shifting housing preferences as workers no longer need to be close to offices.

UK rents
UK rents Photograph: ONS

Reuters’ David Milliken has points out that motor fuel prices (+30.7%) and clothing and footwear (+9.8%) both saw record price increases in March:

Food inflation highest since September 2011

The jump in food and non-alcoholic drink inflation to 5.9% means prices are now rising at the fastest annual rate since September 2011.

As well as the 18% surge in oil and fats compared with March 2021, the inflation report shows that bread rose 5% over the year, pasta products and couscous jumped 10.1%, and low-fat milk prices jumped 14.2%.

Meat prices were up 5.6%, fish by 4.7%, fruit by 5.4%, and ready-made meals by 7%. Within drinks, mineral and spring water prices jumped 15.8%, with fruit and vegetable juices 10% higher.

The surge in agricultural prices triggered by the war in Ukraine means food inflation could soon climb to 7.0%, warns Ruth Gregory of Capital Economics.

These price changes are based on the ONS’s inflation basket, which tracks price changes for around 730 goods and services across the UK.

Food writer and campaigner Jack Monroe warned earlier this year that poorer families were seeing much sharper increases, as budget food ranges were removed.

Price of oils and fats for food increased by 7.2% in March alone, and were up 18.1% over the last year, the inflation report shows.

That includes a near 35% annual increase in prices of margarine and other vegetable fats.

Ukraine is the world’s main supplier of sunflower oil, followed by Russia, and the war has driven up global prices and disrupted supplies.

The retail price index meaure of UK inflation rose even more rapidly, hitting 9% per year in March, the highest since 1991.

Although RPI is no longer a national statistic (the ONS says it isn’t a good measure of inflation), it is still used in many commercial contracts, in wage negotiations, and to set the interest payment on index-linked government bonds.

TUC: UK needs emergency budget

The TUC union are calling for an emergency budget to help struggling households, including more help on energy bills.

TUC General Secretary Frances O’Grady says:

“The chancellor has done almost nothing to help families as prices surge.

And by holding down pay in the public sector and cutting universal credit, he has made the crisis worse.

“Families need help now. Whoever is chancellor tomorrow should go to parliament with an emergency budget to help with surging energy bills and to get wages rising.”

Chancellor of the Exchequer, Rishi Sunak, has warned that the Russia-Ukraine war could exacerbate inflationary pressures:

“We’re seeing rising costs caused by global pressures in our supply chains and energy markets which could be exacerbated further by Russian aggression in Ukraine.

“I know this is a worrying time for many families which is why we are taking action to ease the burdens by providing support worth around £22bn in this financial year, including for the most vulnerable through our Household Support fund. We’re also helping as many people as possible into work - the best way for families to gain economic security in the longer term.”

But Sunak continues to face heavy criticism for not providing more help in last month’s Spring Statement, with households facing the biggest cost of living squeeze on record.

That lack of support for low-income families will push another 1.3 million people into absolute poverty next year, Resolution Foundation warned last month.

Universal credit, and state pensions, only rose by 3.1% this month (in line with last September’s inflation rate), even though inflation was already double that level.

Katie Schmuecker, deputy director of policy & partnerships at the Joseph Rowntree Foundation, says this will mean ‘deepending hardship’ for struggling families.

Economist Simon French of Panmure Gordon warns that inflation could peak at 10% this year:

Prices at restaurants and hotels jumped 2% between February and March 2022, the largest monthly change since the ONS data started in 1988.

This came principally from the rising cost of alcoholic drinks served in restaurants, cafes and public houses, and from accommodation services.

Kitty Ussher, chief economist at the Institute of Directors, said:

“It seems that when people re-started their social lives as restrictions ended in March, the places they visited were able to pass on their own higher costs to their returning customers.”

Kate Nicholls, CEO of UKHospitality, warns that hospitality firms are already seeing double-digit cost increases.

The end of the temporary cut to VAT, from 20% to 12.5%, at pubs, cafes, bars and restaurants this month will also push up prices.

Here’s a breakdown of the factors driving UK inflation to a 30-year high of 7%:

  • Food and non-alcoholic beverages: 5.9%
  • Alcoholic beverages and tobacco: 4.8%
  • Clothing and footwear: 9.8%
  • Housing, water, electricity, gas and other fuels: 7.7%
  • Furniture, household equipment and maintenance: 10.3%
  • Health: 2.5%
  • Transport: 13.4%
  • Communication: 0.7%
  • Recreation and culture: 4.9%
  • Education: 4.5%
  • Restaurants and hotels: 6.9%
  • Miscellaneous goods and services: 1.9%

UK factories were also been hit by surging raw material costs, and continued to lift their own prices.

Input costs paid by producers rose by 19.2% in the year to March, the ONS reports, the highest rate since records began in January 1997.

In March alone, the rate of input inflation was 5.2%, up from 1.8% in February, which is also a record increase.

Metal products and crude oil were the main factors, due to the surge in commodity prices since the Ukraine war began.

The ONS says:

Crude oil and gas prices continue to rise, driven in part by global geopolitical tensions, including the conflict in Ukraine and trade restrictions with Russia.

These rises are passing through to factory gate prices for heavy industry, such as the manufacture of metal products, reflecting the importance of oil and fuel in their input costs.

Producers increased output prices by 11.9% compared to a year ago (the highest rate since September 2008), which will feed through to higher prices for consumers.

Updated

These charts highlight how prices have been surging:

UK inflation to March 2022
UK inflation to March 2022 Photograph: ONS
UK inflation
UK inflation Photograph: ONS

Energy costs have also soared over the last year.

Gas prices were 28.3% higher in March than a year ago, while electricity was 19.2% higher.

That, though, doesn’t include the latest increase in the price cap, which lifted average bills by 54% for around 22 million households this month.

Prices of kerosene for domestic heating rose by 44.0% between February and March 2022. Heating oil is not covered by the Ofgem price cap, so households who rely on kerosene (often in rural areas) have seen costs spiral in recent months.

Updated

The jump in motor fuel prices to record highs drove inflation up in March, the Office for National Statistics reports.

Average petrol prices were 160.2p per litre in March 2022, compared with 123.7 pence per litre a year earlier.

Diesel also hit a record in March, at 170.5p per litre, after Russia’s invasion of Ukraine drove up oil prices.

The ONS says:

Average petrol prices rose by 12.6 pence per litre between February and March 2022, the largest monthly rise on record (since 1990). This compares with a rise of 3.5 pence per litre between the same months of 2021.

Similarly, diesel prices rose by 18.8 pence per litre this year, compared with a rise of 3.5 pence per litre a year ago.

Updated

UK inflation
UK inflation rates Photograph: ONS

ONS chief economist, Grant Fitzner, says ‘broad based’ price rises drove inflation up to 7% last month.

Introduction: UK inflation hits 7%

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

UK inflation has accelerated to a new 30-year high, deepening the cost of living crisis.

Consumer prices jumped by 7% in the year to March, up from 6.2% in February, figures just released show, as living standards continue to be squeezed.

That’s the highest CPI inflation rate since March 1992, and higher than expected, as energy, fuel and food continue to rise sharply.

On a monthly basis, CPI rose by 1.1% during March.

This jump in inflation means workers are taking a real terms pay cut. Total pay (including bonuses) rose by 5.4% per year in the three months to February, while regular pay rose 4%.

Inflation is expected to rise again in April, possibly over 8%, due to the 54% increase in the energy cap. That will intensify the pressure on households, with economists predicting this will be the worst parliament on record for living standards growth.

Inflation is hitting business confidence too. Sentiment among financial services firms has dropped at its quickest pace since September 2019, the latest CBI/PwC Financial Services Survey released this morning found.

Inflation is also a global problem right now - in America it climbed to 8.5% last month, a 40-year high, as gasoline and food prices jumped.

And overnight, it has prompted New Zealand’s central bank to raise interest rates by half a percentage point, its biggest increase in 22 years, after inflation there hit 5.9%

The agenda

  • 7am BST: UK consumer inflation report for March
  • 7am BST: UK producer prices inflation report for March
  • 9am BST: IEA releases monthly oil report
  • 9.30am BST: UK house price index for February
  • 3pm BST: Bank of Canada sets interest rates

Updated

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