UK Inflation Jumps To 40-year High of 9% As Food and Energy Prices Spiral

May 18, 2022

U.K. inflation soared to a 40-year high of 9% in April as food and energy prices spiraled, official figures revealed Wednesday, escalating the country’s cost-of-living crisis.

Consumer prices rose by 2.5% month-on-month, fractionally below expectations for a 2.6% climb in a Reuters poll of economists, which had also projected a 9.1% annual increase.

The 9% rise in the consumer price index is the highest since records began in their current form in 1989, outstripping the 8.4% annual rise posted in March 1992 and well ahead of the 7% seen in March of this year. The U.K.’s Office for National Statistics also said its estimates suggest that inflation would have last been higher “sometime around 1982.”

From April 1, the U.K. energy regulator increased the household energy price cap by 54% following a surge in wholesale energy prices, including a record rise in global gas prices. The regulator, Ofgem, has not ruled out further increases to the cap at its periodic reviews this year.

Bank of England pressure

The Bank of England has hiked interest rates at four consecutive meetings, raising 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 stomping out economic growth.

A recent survey showed that a quarter of Britons have resorted to skipping meals as inflationary pressures and a food crisis conflate in what Bank of England Governor Andrew Bailey has dubbed an “apocalyptic” outlook for consumers.

Wednesday’s mammoth inflation print delivers 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 U.S., U.K. inflation continues to rise for the time being, stoking further fears around the cost of living,” said Richard Carter, head of fixed interest research at Quilter Cheviot, in a research note.

“It will also add to the pressure on the Bank of England to increase interest rates and get to grips with soaring prices even if, as they admit themselves, many of the factors driving inflation are beyond their control.”

Carter suggested that further pressure is likely to mount on the British government to pull fiscal levers and look to “alleviate the pain on households come the Autumn.”

‘Unprecedented’ damage

The British Chambers of Commerce warned following Wednesday’s announcement that the “eye-watering” inflation rate and cost-of-living crisis facing households is damaging firms’ ability to invest and operate at full capacity.

“The scale at which inflation is damaging key drivers of U.K. output, including consumer spending and business investment, is unprecedented and means there is a real chance the U.K. will be in recession by the third quarter of the year,” said Suren Thiru, head of economics at the BCC, in a note.

“While inflation may moderate a little over the summer, April’s inflationary surge is likely be surpassed in October as the expected energy price cap rise in the month lifts inflation above 10%.”

The BCC called on the British government to help consumers and businesses through the crisis by reversing its recent increase to National Insurance — a tax on income — and cutting VAT (value added tax) on business energy bills.

Source: CNBC
Image Credit: Pixabay