LONDON, England: As surging food costs are further squeezing household budgets, in
July consumer price inflation in the UK jumped to 10.1 percent, the highest since February 1982.
The UK is the first major developed economy to witness double digit inflation, with June’s annual rate of 9.4 percent being above the predictions of economists polled by Reuters.
Investors are also betting that the Bank of England will continue raising interest rates, despite warnings of an impending recession.
The central bank raised its key rate by 0.5 percent to 1.75 percent, the first half-point increase since 1995, and inflation is expected to peak further at 13.3 percent in October, when regulated household energy prices are due to increase.
After the release of the latest figures, Citi economist Benjamin Nabarro said he now expected inflation to peak above 15 percent in early 2023.
In a poll by Reuters conducted earlier this week, most economists said they expect the Bank of England to raise interest rates by another half point to 2.25 percent after its next meeting in September.
The Office for National Statistics also released figures this week, which showed that from June to July, prices rose 0.6 percent on a non-seasonally adjusted basis.
The main cause of the rise in CPI inflation from June to July was a 12.6 percent increase in annual food prices, the highest since 2008, while higher energy and petrol prices were the main overall driver throughout the year.
Meanwhile, an older measure of inflation, the annual rate of retail price inflation, reached 12.3 percent, the highest since March 1981.
According to the Bank of England, surging energy prices in Europe are also likely to force the UK into a long but shallow recession later this year, though data indicates that future inflationary pressures could be starting to ease.
Due partly to weaker international demand for steel and lower crude oil prices as economic growth slows globally, input prices rose by only 0.1 percent month-on-month, the smallest increase so far in 2022.
As COVID-19 supply chain bottlenecks are gradually easing, economists also stressed that global shipping and commodity prices were beginning to fall, which could slow the rate of inflation near the end of the year.
“This would help to ease the Monetary Policy Committee’s fears about high inflation becoming ingrained and, therefore, convince them to stop hiking Bank Rates sooner than investors currently expect,” said Samuel Tombs from Pantheon Macroeconomics, as quoted by Reuters.