Inflation in the United Kingdom reached a new record high in July as the nation’s families continued to feel the effects of historically high food and energy prices.
According to figures released by the Office for National Statistics on Wednesday, the consumer price index increased by 10.1% annually, exceeding the consensus estimate of 9.8% provided by Reuters and increasing from 9.4% in June.
Core inflation, which excludes items like energy, food, alcohol, and tobacco, was higher than expected at 6.2% in the year ending in July 2022, rising from 5.8% in June.
Following the announcement, British 2-year Gilt rates spiked on Wednesday morning, rising more than 26 basis points to reach 2.41%, which is the highest level since November 2008.
According to the ONS’s study, the increase in food prices between June and July had the biggest impact on annual inflation rates.
“Supermarkets have had little choice but to pass on price increases from suppliers, themselves contending with unprecedented inflation in raw material and ingredient input costs,” the PwC director of retail strategy, Kien Tan, said.
“This has been particularly acute in labour and utility intensive categories like dairy, with reports of the price of a pint of milk having more than doubled in some stores since the start of the year.”
The ONS reiterated that its indicated modelled consumer price inflation estimates “suggest that the CPI rate would last have been higher around 1982, where estimates range from nearly 11% in January down to approximately 6.5% in December.”
The Bank of England has raised interest rates six times in a row in an effort to contain inflation. This month, it raised rates by the most since 1995 and forecasts that the United Kingdom will experience its longest recession since the global financial crisis in the fourth quarter of the year.
The Bank predicts that inflation will reach its peak in October at 13.3%. The two candidates for the Conservative Party leadership, Liz Truss and Rishi Sunak, are under increasing pressure to offer radical solutions to the nation’s historic cost-of-living crisis. One of them will succeed Boris Johnson as prime minister on September 5 as determined by a poll of party members.
According to the most recent predictions, the U.K.’s annual energy price cap could increase from its current £1,971 to £4,266 ($5,170) early next year, with many homes already having to choose between heating and eating. Following the subsequent review, the cap is anticipated to increase to more than £3,000 in October.
According to ONS data released on Tuesday, the second quarter of 2022 saw the biggest annual decrease in real wages in the history of the United Kingdom at 3%.
Despite a 4.7% increase in average salary (before bonuses), the cost of living is surpassing wage growth and putting pressure on household incomes.
“Today’s inflation figures serve as a further reminder to many UK households that they are facing a period of considerable financial hardship,” Dan Howe, director of investment trusts at Janus Henderson, said.
“Consumers are already grappling with rising energy costs and surging household prices, all compounded by a lack of decisive action at the political level. Amid talks of strikes and energy blackouts, there is no doubt that tough decisions lie ahead of U.K. families.”
In an effort to combat inflation, the Bank of England is likely to respond at its upcoming monetary policy meeting with yet another 50 basis point interest rate hike, according to Richard Carter, head of fixed interest research at Quilter Cheviot. Carter also asserted that there is no doubt that the cost-of-living situation will worsen before it gets better.
“As such, there will no doubt be a lot of pressure on the next Prime Minister to help soften the blow and the Bank of England will continue to have a very difficult job on its hands,” he added.