Sterling rises as inflation data turns heat up on BoE

LONDON, March 22 (Reuters) – Sterling jumped on Wednesday after data showed UK price pressures picked up a lot more than expected in February, including inflation that excludes food and energy, raising the chances of another rate rise this week from the Bank of England.

British consumer price inflation (CPI) unexpectedly rose to 10.4% in February from January’s 10.1%, figures from the Office for National Statistics showed on Wednesday.

Economists polled by Reuters had forecast the annual CPI rate would drop to 9.9% in February.

The pound was last up 0.3% against the dollar at USD 1.225, from a 0.1% gain prior to the data. The euro fell 0.3% against the pound to 87.86 pence, from 88.00 pence earlier.

“Big unexpected jump in UK inflation this morning, breaking a three-month stretch of prior declines. This is a real problem for the Bank of England, which will need to stay the course on further rate rises, increasing the probability of recession later in the year,” John Leiper, chief investment officer at Titan Asset Management, said.

Money markets show a 61.6% chance the Bank of England (BoE) will raise rates by a quarter point when it meets on Thursday, up from around 57% on Tuesday.

The core CPI, which excludes energy, food, alcohol and tobacco and is watched closed by the BoE, rose to 6.2% from 5.8% in January, versus a forecast decline to 5.7%.

The annual inflation rate in the services sector, which most policymakers consider a good measure of underlying price pressures, rose to 6.6% from 6.0% in January.

The pound has risen by 2% against the dollar so far in March, partly reversing some of February’s 2.43% drop. But it’s struggling to make much headway, given traders widely expect the BoE to make this week’s rate decision the last hike for now.

At over 10%, the rate of inflation is more than five times the BoE’s target rate of 2% and the highest among the Group of Seven richest nations.

“One other thing that we also know about inflation in the UK is that it goes up quickly and comes down slowly, and with wage inflation also rising it is likely to remain sticky,” CMC Markets strategist Michael Hewson said.

(Reporting by Amanda Cooper; Editing by Joice Alves and Mark Potter)