Bank of England Can't Ignore this Inflation Data: Hargreaves Lansdown

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There is no respite for punishing inflation for consumers and companies, with prices becoming even hotter in February.

There had been high hopes that it would finally have retreated from its double-digit heights, making a march downwards, but it has headed back towards the summit.

As restaurants and hotels ratchet up prices faced with the high costs of food and labour, it's feeding through to unpalatable hikes for customers.

Shoppers are struggling with higher food and clothing prices too, with the cost-of-living headwinds showing little sign of dying down.

It had been touch and go about whether the Bank of England will raise rates but now with consumer price inflation rising to 10.4% on the month, it looks increasingly likely a hike will be voted through tomorrow.

Although the banking turmoil will be front of mind, this latest snapshot and ongoing worries about a tight labour market are likely to tip the balance in favour of a rate hike.

There are concerns that the banking scare will end up being a disinflationary force by leading to a knock-on effect on lending which could hit the spending of companies and consumers if loans are a bit harder to come by.

The housing market is already reeling from the effects of a spike in mortgage rates and if lenders turn more cautious it could be another gut-punch.

So given the potential headwinds which could whip up, the risk is that a hike now could end up pushing inflation below target further down the line.

This is likely to be more of a background concern for policymakers right now, particularly as action to stem contagion in the banking sector appears to be working, but it may still mean a hike tomorrow will be the last one in the line.

Federal Reserve: "Considerable Psychology at Work"

Markets have exhaled in a sigh of relief that the cavalry is standing by ready to charge in if the banking flank suffers fresh casualties.

There is a growing expectation that given the chaotic events of the past fortnight, the end of painful interest rate hikes is now on the horizon in the US.

The Fed will be the subject of intense focus later today as its rate decision is due, with an increase of 0.25% still expected despite the turmoil.

There will be considerable psychology at work, as a pause at this stage could inflame worries by being taken to indicate that policymakers are rattled.

Instead, they may prefer to shore up confidence by keeping to a pre-set path for now, particularly given that stability has returned.

Concerns about the future of First Republic Bank have been assuaged by indications the US Treasury would step in to backstop deposits.

But as we’ve seen sentiment can turn very quickly and investors will be hanging on every word from Fed chair Jerome Powell for indications about when a pause will come.

The oil price is still reflecting concern about the knock on effect of the banking turmoil on growth and is hovering around $74. However, its gained ground since last week as central banks and the US government have reinforced the pledge to take fresh action if needed.

Market Report by Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown.