“This is an ugly report, and especially disappointing after the false hope given by the drop in core inflation in the January report,” said Antoine Bouvet, a strategist at ING Groep NV. “This cements the call for another 25-basis-point hike.” 

UK food and non-alcoholic drink prices soared 18%, the fastest pace in 45 years, and increases in clothing costs accelerated. Core prices — which exclude volatile food and energy — also picked up last month to 6.2% after decelerating to 5.8% in January. Services inflation jumped to 6.6% from 6%, a sign of increasing domestic wage pressures that is closely watched by the BOE.

The report will likely intensify the debate at the BOE, where divides have emerged on the Monetary Policy Committee over how much further to raise rates given the headwinds to growth. Officials raised the benchmark rate to 4% in February, extending a tightening cycle that has lifted borrowing costs from 0.1% in late 2021. Money-market pricing implies around 65 basis points of further hikes, up from around 40 basis points at Tuesday’s close. 

Eoin Treacy's view

Energy prices are a major component in UK inflation because they impact both domestic costs and those of imported goods. The other big contributor was the excessive spending deployed during the pandemic which boosted demand. The retreat from living standard creep is as painful for countries as it is for individuals.

The Bank of England may be reluctant to raise rates very much higher but it will be inhibited from cutting rates as long as inflation remains problematic.

The Pound continues to hold the $1.20 area, which is also the lower side of the 2016-22 range. A sustained move below that level would be required to question support building in this area.

The FTSE-100 continues to rebound, as it unwinds the short-term oversold condition resulting from last week’s volatility. This confirms at least near-term support in the region of the 1000-day MA.

The FTSE-250 Index also rebounded this week but has sustained more serious damage to the consistency of the trend. As a result, it has more work to do to confirm a return to demand dominance.