The UK’s rate of inflation jumped to 10.1 per cent in July, the first time it has registered a double-digit annual increase in more than four decades.
Consumer price inflation, driven by higher food prices, rose from 9.4 per cent in June to its highest level since February 1982. The double-digit rate exceeded economists’ expectations that the rate would edge up to 9.8 per cent.
With broad rises in prices across the UK economy in July, resulting in an inflation rate greater than in other G7 countries, the figures on Wednesday highlighted the difficult task the Bank of England (BoE) faces to bring inflation down.
The UK Office for National Statistics (ONS) said that July’s increase in prices – 0.6 per cent in the month alone – was unusual because prices generally fall in July at a time of high-street sales. Inflation last month was at its highest rate for any July since comparable monthly measures started in 1988, the statistical agency added.
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Grant Fitzner, chief economist at the ONS, said a “wide range of price rises drove inflation up again this month”.
He noted that bread, dairy products, meat and vegetables were the goods that contributed the most to the increase in inflation; a knock-on effect was higher prices for takeaways.
With chaos at airports and restricted supply of flights, the price of package holidays also rose much faster this year than in 2021.
Food price inflation hit 12.7 per cent in July, the highest rate in the category for more than 20 years.
The core rate of CPI inflation, excluding energy and food prices, also exceeded expectations in July, rising by 6.2 per cent, ahead of economists’ expectations of a 5.8 per cent rate. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said this reflected “near-term momentum” in price rises and not falls in prices a year ago.
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 nations.
This reflects the country’s greater use of gas, the underlying strong growth in spending last year, pay growth in the private sector rising above 5 per cent and the ease with which companies expect to pass on higher costs to customers.
Many economists on Wednesday said the upward surge in inflation – along with robust wage growth in the second quarter – would stiffen the Bank of England’s resolve, encouraging the central bank to raise interest rates further and faster.
Luke Bartholomew, senior economist at Abrdn, said: “Given the strength of underlying inflation pressure, we continue to expect the Bank[of England] to deliver another 0.5 per cent interest rate increase at its next meeting.”
With the BoE likely to raise rates, pressures on households will increase in the autumn as energy prices are set to leap again in October, although there has been some relief as a result of lower petrol costs this month.
The BoE expects the rate of inflation to rise to more than 13 per cent in the final quarter of this year and stay high through most of 2023.
Separate ONS analysis showed that poorer households were facing greater rates of inflation than those with higher incomes because they spent a bigger proportion of their budgets on energy and food, which were rising fastest in price.
The hit to household living standards would take its toll on economic growth, economists said. Jamie O’Halloran at Pro Bono Economics, an organisation that advises the charitable sector, said the rapid rise in prices was “driving a punishing cost of living crisis, with the threat of recession looming ever-nearer”. – Copyright The Financial Times Limited 2022
