UK grocery inflation unexpectedly rose to 4.3% in the four weeks to 22 February, up from 4% in January, according to market research firm Worldpanel by Numerator. The increase comes as a blow to households already struggling with the cost of living and has reduced the likelihood of an interest rate cut by the Bank of England later this month.
The European Central Bank's chief economist, Philip Lane, warned that prolonged conflict in the Middle East could lead to lower oil and gas supplies, causing a 'substantial spike' in inflation and a 'sharp drop in output' in the eurozone. Such developments would also affect the UK, where energy prices have already risen sharply.
Financial markets now indicate just a 29% chance of a UK rate cut this month, down from 80% last week, as government borrowing costs rose. The yield on two-year bonds increased by 13.5 basis points, while 10-year and 30-year yields also jumped.
Worldpanel's Fraser McKevitt noted that chocolate prices remain high, up 9.3% year-on-year, though the pace of inflation in that category is easing. Meanwhile, Greggs reported a near-18% drop in pre-tax profits to £167.4m, but said 'easing inflationary pressures' should boost consumer spending.
Shoppers spent heavily on Valentine's Day and Shrove Tuesday celebrations. Pre-made pancake mix sales surged 114% in the week before Pancake Day, while ingredients for homemade batter cost 6% more than last year. Online grocery sales rose 9.7% year-on-year, accounting for 13% of total sales, the highest since July 2021.
Among supermarkets, Ocado remained the fastest-growing grocer with 15.1% sales growth, while Lidl recorded double-digit growth for the 12th consecutive month. Tesco increased its market share to 28.5%, and Waitrose achieved its highest sales growth since March 2021. However, Asda and Co-op saw sales decline.
