UK inflation accelerated more than expected last month to the highest in 40 years, intensifying a squeeze on consumers and adding to pressure for action from the government and Bank of England (BOE).
The consumer price index rose 10.1 percent from a year earlier after a 9.4 percent gain the month before, the Office for National Statistics (ONS) said yesterday. The reading was higher than expected by the BOE and private-sector economists.
Rising food prices made the biggest contribution to the month’s increase, indicating inflationary pressures are spreading beyond energy.
Photo: Bloomberg
“Food prices rose notably, particularly bakery products, dairy, meat and vegetables, which was also reflected in higher takeaway prices,” ONS chief economist Grant Fitzner said. “Price rises in other staple items, such as pet food, toilet rolls, toothbrushes and deodorants also pushed up inflation in July.”
The figures add to a cost-of-living crisis, with wages falling further behind rising prices for goods and services of all kinds.
The central bank expects inflation to top 13 percent in October, when the energy price cap resets, and BOE Governor Andrew Bailey has signaled he is prepared to raise interest rates further. Investors are pricing in another 50-basis-point hike next month.
“Rising inflation is really putting the squeeze on real wages, even with strong wage growth,” JP Morgan Asset Management global market strategist Mike Bell said. “And with the increase in energy bills coming in October, it’s only set to get worse.”
Economists are growing 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 start in the fourth quarter, lasting into the early part of 2024.
The central bank expects inflation to surpass 13 percent later this year, when regulators allow energy bills to rise again.
That would mark the worst reading since September 1980, when then-British prime minister Margaret Thatcher’s government struggled to bring a wage-price spiral under control.
Separate figures showed pipeline price pressures appeared to be easing, with fuel and raw material prices rising just 0.1 percent last month, the smallest monthly increase since December last year. That was mainly due to a drop in crude oil prices during the month. It still left input prices up 22.6 percent year-on-year, only slightly below the record pace in June.
Output prices rose 1.6 percent month-on-month and by 17.1 percent from a year earlier, the largest annual gain since 1977.
“The cost of both raw materials and goods leaving factories continued to rise, driven by the price of metals and food respectively,” Fitzner said.
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