The United Kingdom’s inflation rate hit a 40-year high of 9% in April as food and energy prices soared, exacerbating the nation’s cost-of-living issue.
40 Year High
A Reuters survey projected a 2.6% monthly price increase and a 9.1% annual rise. However, the actual monthly growth rate of 2.5% fell just below expectations. The 9% rise in the consumer price index is the highest since records began in 1989, exceeding the 8.4% jump in March 1992 and the 7% logged in March last year. Inflation would have been higher “sometime around 1982,” according to the UK’s Office of National Statistics.
In response to a jump in wholesale energy costs, including a record increase in worldwide gas prices, the UK energy regulator boosted the home energy price limit by 54% on April 1st. The regulatory agency known as Ofgem has not ruled out the possibility of increasing the cap once again this year.
In an effort to rein in inflation without stifling economic growth, the Bank of England has hiked interest rates for the fourth meeting in a row. This brings the cost of borrowing from 0.1% to 1%.
A recent poll revealed that a quarter of Britons had resorted to skipping meals as a result of higher inflation and a food crisis. Bank of England Governor Andrew Bailey has described this as “apocalyptic” for consumers. The colossal inflation figure released on Wednesday sends another “hammer blow” to people already concerned about the rising cost of living. Consequently, there are worries that the situation could only worsen.
In a research note, Richard Carter, director of fixed interest research at Quilter Cheviot, warned that “unlike in the US, UK inflation continues to rise for the time being, stoking further fears around the cost of living.” Carter added that the inflation surge will increase pressure on the Bank of England to raise interest rates even further. Leaning against skyrocketing prices, however, may be outside of the central bank’s control as lots of the factors pushing prices higher are external.
Carter projected that by this fall, the British government could face more pressure to pull budgeting levers in efforts to “alleviate the pain” for families.
Following Wednesday’s news, the British Chambers of Commerce cautioned that the “eye-watering” inflation rate and cost-of-living problem are threatening companies’ ability to invest and function at full potential.
Additionally, Suren Thiru, head of economics at the BCC, said in a note that the magnitude at which inflation is affecting key drivers of UK production, such as consumer spending and corporate investment, is unprecedented. He went on to say that it means the UK might be in recession by the third quarter of this year.