UK inflation rate rises to 40-year high of 10.1%
The UK’s inflation rate rose to 10.1 percent in July, the first time in more than four decades that it has recorded a double-digit annual increase.
Consumer price inflation, driven by higher food prices, rose from 9.4 percent in June to its highest level since February 1982. Double-digit inflation beat economists’ expectations for inflation to rise to 9.8 percent.
With wide-ranging price hikes in the UK economy in July, resulting in an inflation rate that was higher than other G7 countries, Wednesday’s figures highlighted the difficult task facing the Bank of England to drive down inflation.
The Office for National Statistics said the July price hike – 0.6 percent in the month alone – was unusual as prices generally fall in July at a time of high-street sales. Inflation last month was at its highest level in July since comparable monthly readings began in 1988, the statistical office added.
Grant Fitzner, chief economist at the ONS, said a “wide range of price increases this month has pushed inflation back up”.
He noted that bread, dairy products, meat and vegetables were the commodities that contributed most to the rise in inflation; a knock-on effect was higher prices for takeaways. With chaos at airports and a limited supply of flights, the price of package holidays also rose much faster this year than in 2021.
Food price inflation reached 12.7 percent in July, the highest rate in the category in more than 20 years.
The core CPI inflation rate, excluding energy and food prices, also beat expectations in July, rising 6.2 percent, ahead of economists’ expectations of 5.8 percent.
Samuel Tombs, chief economist in the UK at Pantheon Macroeconomics, said a year ago this reflected “short-term momentum” in price rises, not falls.
While all advanced economies have seen a rise in inflation, it has been stronger in the UK than in other G7 countries and most European countries.
This reflects the country’s increased use of gas, underlying strong spending growth last year, private sector wage growth exceeding 5 percent and the ease with which companies expect to pass on higher costs to customers.
Many economists said on Wednesday that the upward surge in inflation — along with robust wage growth in the second quarter — would bolster the Bank of England’s determination and encourage the central bank to raise interest rates further and faster.
Luke Bartholomew, senior economist at Abrdn, said: “Given the strength of underlying inflationary pressures, we continue to expect the Bank to[of England] to implement another 0.5 percent rate hike at the next meeting.”
With the BoE likely to raise rates, pressure on households will increase in the fall as energy prices are set to rise again in October, although there has been some relief from lower gasoline costs this month.
The BoE expects inflation to rise to over 13 percent in the last quarter of this year and remain high through most of 2023.
Separate ONS analysis showed that poorer households experienced higher inflation than those with higher incomes because they spent a larger proportion of their budget on energy and food, which rose in price the fastest.
The blow to household living standards would take its toll on economic growth, economists said.
Jamie O’Halloran of Pro Bono Economics, an organization that advises the charitable sector, said the rapid rise in prices has “triggered a debilitating crisis in the cost of living as the threat of a recession draws closer”.