UK inflation reaches 10.1% on soaring food, energy costs
LONDON: Britain’s inflation rate rose to a 40-year high of 10.1% in July, a faster pace than in the US and Europe, as climbing food prices in the country tightened a cost-of-living squeeze fuelled by the soaring cost of energy.
The double-digit surge in consumer prices over a year earlier was higher than analysts’ central forecast of 9.8% and a jump from the annual rate of 9.4% in June, the Office for National Statistics said on Wednesday. The increase was largely because of rising prices for food and staples, including toilet paper and toothbrushes, it said.
Most economists believe worse is to come. Soaring natural gas prices are likely to drive consumer price inflation to 13.3% in October, according to the Bank of England. This push Britain into a recession that is expected to last through 2023, it said.
Those pressures persuaded the bank to boost its key interest rate by half a percentage point
this month, the biggest of six consecutive increases since December. The rate now is 1.75%, the highest since the depths of the global financial crisis in late 2008.
“We expect another 50 bps (basis points) rate hike in September,” said James Smith, developed markets economist at ING Economics. “We wouldn’t rule out another hike in November.”
Inflation is surging in many countries as the Russia-Ukraine war has triggered unprecedented increases in energy prices worldwide. Russia has reduced natural gas shipments to Europe in retaliation for the West’s support of Ukraine, creating a crisis for the fossil fuel that powers factories and heats homes in the winter.
The gas woes are threatening a recession in the 19 countries sharing the euro currency, where inflation hit a record 8.9% in July. The US has already seen two quarters of economic contraction, intensifying fears of a recession. US inflation eased somewhat to 8.5% in July but is still near a four-decade high.
“I understand that times are tough and people are worried about increases in prices that countries around the world are facing,” said UK treasury chief Nadhim Zahawi.
“There are no easy solutions, but we are helping where we can,” he said, including with a £400 ($483) payment to households facing rocketing energy bills.
Britain’s Conservative government is under pressure to do more to help people cope with the cost-of-living crisis.”