The annual inflation rate in the United Kingdom has reached double digits, reaching 10.1% in July, the highest increase since 1982. As a result of higher food and energy costs, U.K. consumer prices are rising more rapidly than those in the U.S. and Europe.
Wednesday, the Office for National Statistics (ONS) reported that the increase in the U.K.’s consumer price index was greater than the 9.8% predicted by analysts and above the annual rate of 9.4% in June. According to the report, the majority of the increase was due to higher prices for food and essentials, such as toilet paper and toothbrushes.
Core inflation, which excludes volatile food and energy prices, also exceeded analyst expectations in July, reaching 6.2%. “As anticipated, food was the primary driver of inflation, but the drivers were broad-based, with categories such as apparel, rentals, and travel [and] transport services all exerting significant upward pressure on both core and headline inflation,” TD Securities analysts wrote in a note.
Expect double-digit inflation.
The majority of economists are pessimistic about the future. The Bank of England predicts that soaring natural gas prices will drive October’s consumer price inflation to 13.3%. It is projected that this will push the United Kingdom into a recession that will last until 2023. According to ONS, after adjusting for inflation, salaries in the United Kingdom decreased at an annual rate of 3% in the second quarter.
These pressures convinced the bank to hike its benchmark interest rate by 0.5 percentage points this month, the largest of six consecutive increases since December. The current rate is 1.75 percent, the highest level since the depths of the 2008 global financial crisis.
“We anticipate another 50bp (basis point) rate increase in September,” said James Smith, an economist for developed markets at ING Economics. We cannot rule out another price increase in November.
As Russia’s war in Ukraine has triggered unprecedented increases in energy prices worldwide, inflation is soaring in numerous nations. In retaliation for Western support of Ukraine, Russia has reduced natural gas exports to Europe, creating a crisis for the fossil fuel that powers factories and warms homes during the winter.
In the 19 nations that share the euro currency, where inflation reached an all-time high of 8.9% in July, the gas crisis threatens a recession. Two consecutive quarters of economic downturn in the United States have intensified fears of a recession. Inflation in the United States decreased to 8.5% in July, but is still around a four-decade high.
Issuing stimulus payments
Nadhim Zahawi, the U.K.’s chief of the Treasury, stated, “I appreciate that times are difficult and that people are concerned about price hikes in countries throughout the world.”
“Although there are no simple solutions, we are helping where we can,” he said, mentioning a $483 ($400) payout to homes with soaring energy costs.
The Conservative administration of the United Kingdom is under pressure to do more to help people cope with the rising cost of living. The average household fuel cost in the United Kingdom has increased by more than 50 percent this year, and another increase is expected in October, when the average price is expected to reach 3,500 pounds ($4,300) annually.
Boris Johnson is scheduled to leave office next month, and he has stated that any fresh initiatives must be left to his successor. Foreign Secretary Liz Truss, the frontrunner to replace him, is opposed to major action and advocates tax savings over “handouts.”
The other candidate, former Treasury chief Rishi Sunak, put a 25% windfall tax on the earnings of oil and gas corporations in May, which is expected to generate several billion pounds to help fund electricity bill assistance for those whose bills are growing. Truss is adamantly opposed to the expansion of the tax to include electrical companies, stating, “Profit is not a filthy word.”