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The UK’s Office for National Statistics said its projections suggested inflation would last peak “around 1982”.
Justin Tellis | AFP | Getty Images
LONDON – UK inflation hit a 40-year high of 9% in April as food and energy prices rose, official figures showed on Wednesday, exacerbating the country’s cost-of-living crisis.
Consumer prices rose 2.5% month-on-month, slightly below expectations for a 2.6% increase in a Reuters poll of economists, which had also projected a 9.1% annual increase.
The 9% increase in the consumer price index was the largest since records began in their current form in 1989, surpassing the 8.4% annual increase posted in March 1992 and higher than the 7% seen in March of this year. The UK’s Office for National Statistics also said its projections suggested inflation would be high “around 1982”.
From 1 April, the UK energy regulator increased the household energy price cap by 54% following a rise in wholesale energy prices, including a record rise in global gas prices. The regulator, Ofgem, has not ruled out further increases in the cap in its periodic reviews this year.
Bank of England pressure
The Bank of England has raised interest rates for four consecutive meetings, lifting the cost of borrowing from its historic pandemic-era low of 0.1% to a 13-year high of 1%, as it looks to rein in runaway inflation without stalling the economy. Growth
A recent survey showed that a quarter of Britons have resorted to skipping meals to cope with inflationary pressures and a food crisis in what Bank of England Governor Andrew Bailey described as an “apocalyptic” outlook for consumers.
Wednesday’s massive inflation print delivered another “hammer blow” to households already worried about the cost of living, and there are warnings that the worst is yet to come.
“Unlike in the US, inflation in the UK is currently continuing to rise, creating more fears around the cost of living,” Richard Carter, head of fixed interest research at Quilter Cheviot, said in a research note.
“It will also add pressure on the Bank of England to raise interest rates and get to grips with rising prices, even though they themselves admit that many of the factors driving inflation are beyond their control.”
Carter suggested that further pressure was likely to increase on the British government to pull the fiscal lever and “relieve the pain on households coming into the autumn”.
While the bank may prefer to look at supply shocks from rising energy and commodity prices in general, the strong labor market data makes the current situation particularly difficult to overcome.
“For the first time since records began, fewer people are unemployed than there are job vacancies and the unemployment rate now sits at a near 50-year low, and workers are leveraging their increased bargaining power to ask employers to raise wages to cope. With higher living costs, wage growth is now running at 7%,” noted Ambrose Croft, global market strategist at JPMorgan Asset Management.
“The risk is that should [the Bank of England] Raising interest rates too quickly at a time when consumers are already feeling the pinch can reduce demand and push the economy into recession. However, doing too little risks driving inflationary expectations and a more persistent wage-price feedback loop.”
JPMorgan strategists therefore believe the bank will try to strike a balance by cautiously raising interest rates one meeting at a time while closely watching economic data for signs of moderation in labor market or wage pressures.
‘Unprecedented’ damage
The British Chambers of Commerce warned following Wednesday’s announcement that “eye-watering” inflation rates and a cost-of-living crisis in households are hurting the ability of companies to invest and operate at full capacity.
Suren Thiru, Head Suren Thiru, said, “The scale at which inflation is damaging the key drivers of UK output, including consumer spending and business investment, is unprecedented and means there is a real possibility that the UK will be in recession by the third quarter of the year. .” of Economics at BCC, in a note.
“While inflation may moderate slightly over the summer, April’s inflation spike is likely to be surpassed in October as an expected energy price cap increase in the month pushes inflation above 10%.”
The BCC called on the British government to help consumers and businesses out of the crisis by reversing its recent increase in National Insurance — a tax on income — and cutting VAT (value added tax) on business energy bills.
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