UK inflation hits 40-year high of 9.0%, putting further pressure on households

  • UK April inflation rate likely to be highest in G7
  • Household energy bills drive up inflation
  • Anti-poverty activists demand government action
  • Inflation is likely to rise further

LONDON, May 18 (Reuters) – British inflation rose last month to its highest annual rate since 1982, putting pressure on Finance Minister Rishi Sunak to offer more help to households and the Bank of England to continue raising interest rates despite the risk of recession.

Consumer price inflation reached 9% in April, the Office for National Statistics said on Wednesday, surpassing the peaks of the early 1990s recession that many Britons remember for sky-high interest rates and widespread bad debts. of mortgages.

Britain has the highest inflation of Europe’s big economies and is almost certainly in the Group of Seven, with Canada and Japan yet to report April data. Neither is likely to match Britain’s price growth, which also appears to be more durable.

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Last month, the International Monetary Fund forecast that Britain in 2023 will face slower economic growth and more persistent inflation than any other major economy.

Comparative inflation rates

Rising energy bills were the biggest driver of inflation, mirroring April’s increase in regulated energy rates. The fallout from Russia’s invasion of Ukraine means those bills are likely to rise again in October.

“We cannot completely shield people from these global challenges, but we provide significant support where we can and stand ready to take further action,” Sunak said.

A Reuters poll of economists had pointed to a reading of 9.1%, down from 7.0% in March, and sterling fell.

Households are facing the biggest cost-of-living reduction since records began in the 1950s, Britain’s budget forecasters say, and consumer confidence has sunk to record lows.

Anti-poverty activists urged Sunak to act now, starting with an immediate increase in social benefits.

“(Sunak’s) inaction will make an already dire situation worse for many,” said Rebecca McDonald, chief economist at the Joseph Rowntree Foundation, which campaigns for low-income households.

A survey on Tuesday showed that two in three people had kept the heating off when they normally would have turned it on, almost half were driving less or switching supermarkets and just over a quarter said they had skipped meals. read more

Food prices rose almost 7% in the 12 months to April, the ONS said.

People shop at a supermarket in London, Britain, December 24, 2021. REUTERS/Kevin Coombs

On Monday, BoE Governor Andrew Bailey told lawmakers rising food prices were a major concern and apologized for “being apocalyptic for a moment”.

While the government is targeting its £22bn ($27.4bn) household support package so far, much of this is being offset by recent tax increases on workers.

The Times newspaper said Sunak was drawing up plans to cut taxes and increase home heating benefits by hundreds of pounds.

A rise in prices charged by restaurants and cafes, as value-added tax rates returned to their pre-pandemic levels in April, added to rising inflation last month.

UK inflation rises to highest level since 1982

THE WORST TO COME

The BoE this month forecast inflation to top 10% later this year and investors expect the central bank to add to the four interest rate hikes it has implemented since December, taking its bank rate to 1%, the most high since 2009.

Bank of America this week criticized the BoE for not being clear about its response, which could leave it vulnerable to political attack and the economy worse off.

“The BoE’s reaction function has become less transparent and monetary policy is more at risk of being perceived as politicized,” it said in a report. “As a result, inflation expectations may be less anchored, so we expect higher interest rate, growth and inflation volatility.”

A former Conservative defense minister, Liam Fox, last week accused the BoE of failing to spot the looming rise in inflation and the Sunday Telegraph newspaper reported that current ministers, whom he did not name, were also critical.

Sunak told parliament on Tuesday that despite the current challenges, “the central bank’s 25-year record of independence speaks for itself.”

Retail price inflation, which the ONS says is no longer accurate but is widely used in business contracts and to set interest payments on inflation-linked government bonds, jumped to 11.1%, also the highest since 1982.

There were signs of further inflationary pressure ahead. Manufacturers saw the biggest joint rise in commodity prices on record, up 18.6%, matching the March high.

Factories raised prices 14.0% during the 12 months to April, the biggest jump since July 2008.

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Edited by John Stonestreet and Alison Williams

Our standards: the Thomson Reuters Trust Principles.

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