Inflation in the UK reached a new 40-year high of 9.1% as food and energy prices continue to rise

Inflation in the UK reached a new 40-year high of 9.1% as food and energy prices continue to rise

More than four in five people in the UK are worried about rising living costs and their ability to afford basic necessities such as food and energy in the coming months, a new study has found.

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LONDON – Inflation in Great Britain reached 9.1 percent on an annual level in May, because rising food and energy prices continue to deepen the crisis of the cost of living in the country.

The 9.1 percent rise in the consumer price index, announced on Wednesday, was in line with the expectations of economists in the Reuters poll and slightly higher than the 9 percent increase recorded in April.

Consumer prices rose 0.7% on a monthly basis in May, slightly more expectations for growth of 0.6%, but far from the 2.5% monthly increase in April, indicating that inflation is slowing somewhat.

The UK’s National Statistics Office said in a statement on Wednesday that its estimates suggest that inflation “would have been higher around 1982, with estimates ranging from almost 11% in January to around 6.5% in December”. .

The largest contribution to the inflation rate was made by housing and household services, primarily electricity, gas and other fuels, as well as transport (mainly motor fuel and used cars).

The consumer price index, including owner-occupied housing costs (CPIH), reached 7.9% in the 12 months to May, compared to 7.8% in April.

“The rise in food and non-alcoholic beverage prices, compared to a year ago, resulted in the largest upward contribution to the change in the 12-month CPIH and CPI inflation rates between April and May 2022 (0.17 percentage points for CPIH),” the ONS said. his report.

The Bank of England conducted the fifth consecutive increase in interest rates last week, although it stopped the aggressive increases recorded in the USA and Switzerland, because it is trying to tame inflation without worsening the current economic slowdown.

The main banking rate is currently at a 13-year high of 1.25% and the Bank expects CPI inflation to exceed 11% by October.

The UK energy regulator has raised the ceiling on household energy prices by 54% since April 1 to adjust to rising wholesale energy prices, including record increases in gas prices, and has not ruled out further increases in the cap in its periodic reviews this year.

The cost of living crisis

Paul Craig, portfolio manager at Quilter Investors, said Wednesday’s inflation footprint was a reminder of the challenges facing the central bank, government, businesses and consumers.

“Unfortunately, the cost of living crisis will not be short-lived, and this ultimately leaves the Bank of England stuck between stone and anvil,” Craig said.

“While the United States has recognized the need to invest sharply and quickly in interest rates, the Bank of England continues to advance at a slower pace, trying not to lead the economy into recession at a time when businesses and consumers are in trouble. “

However, he suggested that the Bank’s current strategy is doing little to prevent inflation from escaping, meaning “harder decisions are coming very quickly” and the Bank is already hinting at higher growth at its next meeting.

A recent survey found that a quarter of Britons have resorted to skipping meals as inflationary pressures and the food crisis merge into what Bank of England Governor Andrew Bailey called “apocalyptic” prospects for consumers.

Along with the external shocks facing the global economy – such as soaring food and energy prices amid Ukraine’s war and supply chain problems due to the long-running bottlenecks of the Covid-19 pandemic – the UK is also managing domestic pressures such as the government’s withdrawal. pandemic-era fiscal support and the effects of Brexit.

Economists also noted signs of tightening labor market conditions and filtering major inflation into the wider economy. Britain is currently preoccupied with huge strikes on national railways, and Nobel Prize-winning economist Christopher Pisarides told CNBC on Tuesday that the labor market was “worse than the 1970s”.

Quilter Craig suggested that the government and the central bank will closely monitor the labor market, and not just because of indications of further strikes due to the growth of wages that lag behind inflation.

“Given the inflation it is on, any sign of weakening employment that is receding will be a great warning sign for the economy,” he said.

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