A customer uses a ten pound sterling note to pay for his fruit and vegetables at a vendor’s market stall in London on May 12, 2022. Official data for the first quarter on Thursday showed that the UK economy registered zero growth the following month after solid economic performance in January, contracting 0.1 percent in March. (Photo by JUSTIN TALLIS/AFP) (Photo by JUSTIN TALLIS/AFP via Getty Images)
Justin Tallis | AFP | Getty Images
LONDON — Britain’s inflation rose to a 40-year high of 9% in April as food and energy prices soared, official figures revealed on Wednesday, and the country’s cost-of-living crisis escalated.
Consumer prices rose 2.5% mom, just below expectations for a 2.6% rise in a Reuters poll of economists, who had also forecast a 9.1% annual rise.
The 9% increase in the consumer price index is the highest since records began in their present form in 1989. It exceeds the annual increase of 8.4% in March 1992 and is well ahead of the 7% in March this year. The UK’s Office for National Statistics also said its estimates suggest inflation was last higher “sometime around 1982”.
From April 1, the UK’s energy regulator raised the price cap on household energy by 54% after wholesale energy prices surged, including a record rise in global gas prices. Regulator Ofgem has not ruled out further increases in the cap in its regular reviews this year.
Pressure from the Bank of England
The Bank of England has hiked interest rates for four consecutive meetings, raising borrowing costs from a historic pandemic-era low of 0.1% to a 13-year high of 1% as it tries to rein in runaway inflation. without stifling the economy growth.
A recent survey found that a quarter of Brits have taken to skipping meals as inflationary pressures and a food crisis merge in what Bank of England Governor Andrew Bailey has called an “apocalyptic” prospect for consumers.
Wednesday’s mammoth inflation delivers another ‘hammer blow’ to households already concerned about the cost of living, and there are warnings the worst is yet to come.
“Unlike the US, inflation in the UK continues to rise for the time being, fueling further fears about the cost of living,” said Richard Carter, head of fixed interest research at Quilter Cheviot, in a research note.
“It will also put more pressure on the Bank of England to raise interest rates and contain rising prices, even if, as they themselves admit, many of the factors driving inflation are beyond their control.”
Carter hinted that there is likely to be further pressure on the UK government to pull fiscal levers and try to “alleviate the autumn fiscal pains”.
“Unprecedented” damage
Britain’s Chambers of Commerce warned after Wednesday’s announcement that the “obvious” rate of inflation and the cost of living crisis facing households is hampering businesses’ ability to invest and operate at full capacity.
“The extent to which inflation is hurting key drivers of UK output, including consumer spending and business investment, is unprecedented and means the UK may slide into recession by the third quarter of the year,” said Suren Thiru, head of economics at the BCC, in a note.
“While inflation may ease somewhat over the summer, April’s inflation spike is likely to be surpassed in October as the expected hike in the energy price cap pushes inflation above 10% in the month.”
The BCC has urged the UK government to help consumers and businesses through the crisis by reversing its recent increase in social security – an income tax – and reducing value added tax (VAT) on business energy bills.