Food price increases boosted British consumer price inflation to a 40-year high of 9.1 per cent last month, the highest rate among the Group of Seven countries and highlighting the severity of the country’s cost-of-living crisis.
The reading increased from 9.0 per cent in April and met the estimate of economists polled by Reuters. According to the Office for National Statistics, May’s inflation rate was the highest since March 1982 – and worse is on the way.
Sterling, one of the year’s weakest currencies against the US dollar, dipped below $1.22, losing 0.6 per cent on the day, before recovering.
Some investors believe that Britain is at risk of both consistently high inflation and recession, owing to the country’s enormous imported energy expenditure and continued Brexit-related tensions, which could exacerbate trade ties with the European Union.
“With the economic outlook so unclear, no one knows how high inflation could go, and how long it will continue for – making fiscal and monetary policy judgements particularly tough,” said Jack Leslie, senior economist at the Resolution Foundation think tank.
The Resolution Foundation stated earlier on Wednesday that the cost-of-living damage for households was being exacerbated by Brexit, with long-term consequences for productivity and wages.
Average salary is falling behind inflation, and trade unions have threatened major strikes in the coming months. This week, railway workers have conducted widespread walkouts.
In May, the headline inflation rate in the United Kingdom was higher than in the United States, France, Germany, and Italy. While Japan and Canada have yet to post May consumer price statistics, neither is expected to come close.
The Bank of England predicted last week that inflation would remain over 9% in the next months until peaking at little more than 11% in October, when regulated household energy rates are expected to rise.
Interest rates in the United Kingdom are expected to rise beyond 3 per cent by the end of the year, up from 1.25 per cent presently, according to financial markets, while most economists believe slowing economic growth means the BoE will raise rates by less.
Following the release of the data, Finance Minister Rishi Sunak stated that the British government was doing everything possible to combat the price rise and that the central bank will act “forcefully” to curb inflation.
Food and non-alcoholic beverage prices increased 8.7 per cent year on year in May, the largest increase since March 2009 and the largest driver of annual inflation last month.
Annual core inflation declined to 5.9 per cent from 6.2 per cent, a lower-than-expected estimate, for the first time since September.
“The Bank of England may indeed gain some hope from the fact that core price pressures are subsiding (but) we doubt this … will be enough to avert further rate rises in the coming months,” said Sandra Horsfield, an economist from Investec.
The ONS reported that overall consumer prices climbed by 0.7 per cent in May, slightly more than the 0.6 per cent estimate.
The ONS said that costs paid by British companies for materials and energy – a crucial predictor of prices eventually paid by consumers in stores – were 22.1 per cent higher in May than a year earlier, the largest increase since records began in 1985.
(Adapted from Reuters.com)