UK inflation accelerated more-than-expected last month to a 40-year high, putting pressure on consumers and increasing pressure on the government and Bank of England to act.
The consumer price index rose 10.1 percent year on year in July after rising 9.4 percent the month before, the Bureau for National Statistics said on Wednesday.
The reading was higher than expected by both the BOE and private sector economists.
Rising food prices were the largest contributor to the monthly rise, suggesting inflationary pressures are spreading beyond the energy sector. The pound briefly spiked to the daily high of $1.2143 after the release before bouncing back.
“Food prices rose significantly, particularly baked goods, dairy, meat and vegetables, which was also reflected in higher takeout prices,” said Grant Fitzner, chief economist at the ONS. “Price increases on other staples like pet food, toilet paper, toothbrushes and deodorants also pushed up inflation in July.”
The figures are contributing to a cost-of-living crisis, with wages falling further behind the rising prices of goods and services of all kinds.
The BOE expects inflation to top 13% in October when the energy price cap is reset and Governor Andrew Bailey has signaled he is ready to raise interest rates further.
Investors are pricing in another 50 basis point hike in September.
Contenders looking to replace Boris Johnson as prime minister are promising further help for those struggling to pay their bills.
“Rising inflation is really putting pressure on real wages, even with strong wage growth,” said Mike Bell, global market strategist at JP Morgan Asset Management. “And with the energy bills soaring in October, it’s only going to get worse.”
Economists are becoming increasingly pessimistic about the UK, with the risk of a recession now seen as far more likely than not due to rising cost pressures.
The BOE expects a recession to begin in the fourth quarter that will last through early 2024.
The central bank expects inflation to top 13 percent later this year if regulators allow energy bills to rise again.
That would be the worst reading since September 1980, when Margaret Thatcher’s government was struggling to bring a wage-price spiral under control.
Separate figures showed that pressure on pipeline prices appeared to be easing, with fuel and commodity prices rising just 0.1 percent in July, the smallest monthly rise since December.
This was mainly due to the decline in crude oil prices over the month. Input prices still rose 22.6 percent for the year, just below the record pace set in June.
Producer prices rose 1.6 percent month-on-month and 17.1 percent year-on-year, the largest annual gain since 1977.
“The cost of both raw materials and goods leaving factories continued to rise, driven by metal and food prices, respectively,” Fitzner said.
Another measure of inflation, used to set rail fares and payouts on index-linked government bonds, posted its sharpest rise since 1981. The retail price index rose 12.3 percent year-on-year, up from 11.9 percent a month earlier.
Bailey has blamed Russia for rising inflation because it has cut natural gas supplies and increased electricity costs across Europe. Gas futures, included in the BOE’s forecasts this month, were almost double May’s levels and have continued to rise over the past week.
These increases are affecting the cost of goods and services, prompting people across the country to demand higher wages. Rail workers are planning another round of strikes this week, and teachers, lawyers and nurses are considering their own actions.
Inflation-adjusted real wages fell 3 percent in three months through June, the fastest pace since records began in 2001, official data released on Tuesday showed.
Jobs rose 160,000 in the second quarter, down 46 percent from the three months to May, and job vacancies fell for the first time since August 2020.
“The cost of living crisis is now very real for both households and businesses, so there must be a concrete way forward to support vulnerable groups with higher energy bills,” said Alpesh Paleja, senior economist at the Confederation of British Industry.
https://www.independent.ie/business/world/uk-inflation-hits-double-digits-for-the-first-time-in-40-years-41917535.html UK inflation hits double digits for first time in 40 years