Pound soars after inflation surge lifts interest rate-rise chances

The pound leapt higher on Tuesday as shock February inflation figures had markets betting that the Bank of England could be forced into an early interest rate rise.

The rise in the Consumer Prices Index to 2.3% — above the Bank’s 2% target for the first time in more than three years — was far sharper than the City was expecting, sending sterling up 1.1 cents against the dollar to $1.2454.

Rate-setter Kristin Forbes broke the fragile consensus on the Bank’s monetary policy committee by voting for a rate rise last week, while minutes showed some of her colleagues are increasingly concerned over mounting evidence of inflationary pressure.

The Bank expects inflation — fuelled by fuel and food prices and the pound’s Brexit slump — to peak at 2.8% this year.

IHS Markit’s chief economist Howard Archer said: “The marked pace at which CPI is rising is uncomfortable both for consumers and for the Bank.”

But most economists still believe Brexit uncertainty will keep the MPC on hold. “We suspect that concerns about surging inflation will be gradually outweighed by the slower growth backdrop,” ING Bank economist James Smith said.

There was better news on the deficit however as borrowing fell £19.9 billion to £47.8 billion in the 11 months to February, the best since before the financial crisis in 2008.