UK inflation climbed to a new 40-year record in June, heaping further pressure on households struggling with a generational cost of living crisis.
Consumer price inflation, as measured by the Office for National Statistics (ONS), hit 9.4 per cent in June compared with the same period last year. It was the highest yearly increase since 1982 and was driven by rising oil prices. Inflation rose from 9.1 per cent in May, and June’s increase was above forecasts from economists polled by Reuters of 9.3 per cent.
The UK is on course to suffer the worst peak in inflation in the developed world later this year with prices jumping by more than 11 per cent in October, according to forecasts from the Bank of England. Runaway inflation is being driven mainly by rising global energy costs, which have supercharged the cost of oil, gas, food and imported goods since the start of the war in Ukraine.
June’s inflation rise was caused mainly by higher oil prices after global Brent crude costs spiked again last month to close at $120 a barrel after the European Union imposed a phased-out ban on Russian oil imports to kick in later this year.
“[June’s] increase was driven by rising fuel and food prices, these were only slightly offset by falling second-hand car prices,” said Grant Fitzner, director of economic statistics at the ONS.
“The cost of both raw materials and goods leaving factories continued to rise, driven by higher metal and food prices respectively. These increases saw raw materials post their highest annual increase on record, with manufactured goods at a 45-year high.”
The retail price index, which is used as a benchmark for inflation-linked government bond costs, rose by 11.8 per cent in June from 11.7 per cent the previous month, said the ONS.
Analysts at Capital Economics have warned that high inflation will eat into people’s disposable income and “mean that a recession now seems inevitable”. They expect real incomes to fall by 2 per cent or more this year and next, the worst squeeze since the 1950s, as workers struggle to get pay rises to keep up with surging prices.
“A recession is unlikely to reduce inflation to the 2 per cent target on its own. As such, we think interest rates will be raised in a recession for the first time since 1975,” said Capital Economics.
The Bank of England has raised interest rates five consecutive times to 1.25 per cent, the highest since 2009, and has vowed to act more “forcefully” if inflation shows signs of becoming worse than its projections.
Andrew Bailey, the governor of the Bank of England, said last night that the monetary policy committe would consider a 0.5 percentage point increase in interest rates in August as policymakers fear the war in Ukraine could fuel further price rises this winter.
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Inflation hits new 40-year high of 9.4%