Inflation in the United Kingdom unexpectedly rose for the first time in four months in February, official data showed Wednesday, ramping up pressure on the Bank of England (BoE) a day before it announces its latest decision on interest rates.

The consumer price index (CPI) jumped to 10.4% in the 12 months through February from 10.1% the previous month, as high energy prices continued to squeeze household budgets, the Office for National Statistics (ONS) said Wednesday.

Economists polled by Reuters had forecast that the annual CPI rate would drop to 9.9% in February from January's 10.1% and move further away from October's 41-year high of 11.1%.

While economists expect prices to drop rapidly later this year, inflation is over five times higher than the BoE's 2% target.

The figures – including increases in underlying inflation measures that the BoE closely monitors – are likely to bolster the concerns of those BoE policymakers who worry that inflation will be slow to fall, even after 10 straight rate hikes.

Investors had been split on whether the central bank would pause that run after the recent upheaval in the global banking sector. But financial markets on Wednesday fully priced in a quarter-point increase to 4.25%. The bank has approved consecutive rate increases since December 2021, pushing its key policy rate to 4%.

"While the decision has at times over the last week looked to be on a knife edge, this inflation outturn would appear to swing it in favour of a 25-basis-point hike," said Liz Martins, a senior economist at HSBC.

"Given the market movements of late, this puts the Bank of England in an incredibly difficult position as it may not be enough for the Bank of England to press pause on the rate hikes," Richard Carter, head of fixed interest research at Quilter Cheviot, said.

Sterling rose against the dollar and the euro after the data was published and two-year British government bond yields, which are sensitive to speculation about interest rates, jumped.

The increase in inflation in Britain contrasted with a fall in the U.S. CPI rate to 6% in the 12 months to February. Eurozone inflation also eased last month to 8.5%, but underlying price growth continued to accelerate.

'Dangerously high'

The ONS said that an end to January drinks promotions in pubs and restaurants was the biggest factor pushing up inflation last month, but shortages of salad items also played a role.

"Food and non-alcoholic drink prices rose to their highest rate in over 45 years with particular increases for some salad and vegetable items as high energy costs and bad weather across parts of Europe led to shortages and rationing," ONS chief economist Grant Fitzner said.

Overall inflation for food and non-alcoholic drinks rose to 18.0%, the highest since 1977, reflecting cold weather in southern Europe and north Africa, as well as reduced production from greenhouses in northern Europe that face high energy bills.

The annual inflation rate in the services sector, which most policymakers consider a good measure of underlying price pressures in the economy, rose to 6.6% after standing at 6% in January.

Basic wages – a big driver of services prices – rose by an annual 6.5% in the three months to January, and a survey of employers on Wednesday showed they expected to raise pay by an average of 5% this year, around double pre-pandemic rates.

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

"These inflation figures smell a little like the recent U.S. experience, where it appeared that core inflation was easing rapidly a few months ago only for it to accelerate again as economic activity proved resilient," said Paul Dales, chief U.K. economist at Capital Economics.

However, other analysts said the increase in inflation appeared to be caused by one-off factors.

Last month, the BoE forecast headline inflation would drop below 4% by the end of 2023 and be beneath its 2% target from mid-2024 onwards, with energy prices no longer rising steeply.

The government's Office for Budget Responsibility forecast last week that inflation would fall below 3% by the end of 2023.

Some BoE policymakers have said they had tightened enough and the full impact of past rate rises had yet to be felt.

Treasury chief Jeremy Hunt said the data showed the expected decline in inflation could not be taken for granted.

"Falling inflation isn't inevitable, so we need to stick to our plan to halve it this year," Hunt said in a statement.

On Tuesday, he told lawmakers that inflation above 10% was "dangerously high."

There were some signs of decreasing price pressures ahead.

Prices paid by factories increased by 12.7% over the 12 months to February, still a big rise by historical standards but their weakest increase since September 2021.

Prices charged by manufacturers rose at their weakest pace in a year, up by 12.1%.