UK inflation hits a 40-year high of 9.4% as the cost of living crisis deepens

LONDON – Inflation in the United Kingdom hit a new 40-year high in June, as food and energy prices continued to rise, escalating the country’s historic cost of living crisis.

The consumer price index rose 9.4% annually, according to estimates on Wednesday, slightly above expectations among economists polled by Reuters and higher. from 9.1% in May.

This represented a 0.8% monthly rise in consumer prices, outpacing the previous month’s 0.7% rise, but still far from the 2.5% monthly increase in April.

The UK’s Office for National Statistics said in a report on Wednesday that typical consumer price inflation estimates “indicate that the CPI rate would have been higher in about 1982, with estimates ranging from approximately 11% in January to approximately 6.5% in December.”

The Office for National Statistics said the most significant contributors to the rise in inflation came from motor vehicle fuels and foodstuffs, with the former rising 42.3% over the year, the highest since before the start of the historic built series in 1989.

The Bank of England implemented five consecutive 25 basis point interest rate hikes as they look to rein in inflation, but Governor Andrew Bailey suggested in a speech At the Financial and Professional Services dinner at Mansion House on Tuesday that the Monetary Policy Committee may consider a 50 basis point raise at its August policy meeting.

This would constitute the largest single rate hike in the UK in nearly 30 years, and Bailey pledged there would be “no condition or reservations” in the bank’s commitment to bring inflation back to its 2% target. The governor has received public criticism from many Conservative Party hopes to replace Boris Johnson as Prime Minister.

“From a monetary policy perspective, these times are the biggest challenge to the inflation targeting monetary policy regime that we have seen in the quarter century since the establishment of the Monetary Policy Committee in 1997,” Bailey said.

“This does not categorically mean that the system has failed. Far from it. The system was created for times like these. The system, which was founded on the independence of the central bank, is now more important than ever. The value of any system is tested in difficult times and not the beautiful “.

The bank expects inflation to peak at around 11% later in the year, while new figures from the Office for National Statistics on Tuesday showed that real wages in the UK over the three months to May saw their biggest drop since records began in 2001, Where wage increases failed to come close. to the rate of inflation.

“Severe cost-of-living pressures are putting significant strains on the UK consumer-led economy and mean recession risks are high,” said Hussain Mahdi, macroeconomic and investment analyst at HSBC Asset Management.

“Nevertheless, the BoE is likely to remain very hawkish as it attempts to counter the risks of a wage-price vortex that is developing with recent data pointing to a still-hot labor market contributing to domestic inflation pressures.”