Inflation in the United Kingdom has surged to its highest level in four decades, with the annual consumer price inflation reaching 9.4% in June, according to data from the Office for National Statistics. This marks the highest level of inflation since February 1982 and is up from May’s 9.1%. The figure exceeded the consensus of 9.3% from a Reuters poll of economists.
Surging prices of petrol and food in the last month were cited as the primary drivers of this record-breaking inflation. Petrol prices rose by 42% year-on-year, while food prices increased by almost 10%. It was noted that the UK had the highest inflation rate among the Group of Seven advanced economies, though some smaller European Union countries were experiencing even faster price growth.
The Bank of England (BoE) has raised interest rates five times since December to combat rising inflation. It is widely anticipated that interest rates will be raised again on August 4 after the next monetary policy meeting.
Suren Thiru, the Economics Director of the accountancy trade body ICAEW, emphasized that the momentum for a half-point interest rate increase in August was growing. However, he cautioned against overly aggressive monetary policy tightening, as it could increase the risk of a recession and may not address the global factors contributing to the inflation surge.
Investors are now almost certain, with nearly 100% certainty, that the BoE will raise the Bank Rate from 1.25% to 1.75% next month, as the central bank has previously stated it is prepared to take forceful action if necessary.
The surge in living costs has led to widespread industrial action by trade unions and has become a focal point in the race to replace Boris Johnson as Prime Minister. Among the three remaining candidates, two are pledging immediate tax cuts, while former Finance Minister Rishi Sunak is concerned that such cuts could exacerbate inflation.
While core inflation in June decreased slightly to 5.8% from 5.9% in May, aligning with the Reuters poll median forecast, the cost of materials and energy for factories rose by 24.0% year-on-year, the largest increase since records began in 1985. Factory prices charged by manufacturers also surged by 16.5%, the most significant rise since September 1977.