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UK inflation has reached a new 40-year high of 9.1%

According to a new survey, more than four out of five people in the UK are worried about rising living costs and the ability to handle basic necessities such as food and energy in the coming months.

Tolga Acmen | Afp | Getty Images

LONDON – UK inflation reached 9.1% year-on-year in May as food and energy prices continue to exacerbate the country’s cost of living crisis.

The 9.1% rise in the Consumer Price Index released Wednesday is in line with the expectations of economists in a Reuters poll and slightly higher than the 9% increase recorded in April.

Consumer prices rose 0.7% month-on-month, slightly up Expectations of a 0.6% rise but below the 2.5% monthly increase in April, suggest that inflation is slowing slightly.

Along with Wednesday’s figures, the UK’s National Bureau of Statistics said its estimates suggest inflation “will be around 1982, where estimates range from about 11% in January to approximately 6.5% in December.”

Most upward contributions to the inflation rate come from housing and home services, primarily electricity, gas and other fuels, with transportation (mostly motor fuel and second hand cars).

The Consumer Prices Index, including owner occupier housing costs (CPIH), rose 7.9% in the 12 months to May, up from 7.8% in April.

“The rise in food and non-alcoholic beverages prices compared to a year ago caused a large upward contribution (0.17 percentage points to CPIH) to changes in CPIH and CPI 12-month inflation rates between April and May 2022,” the ONS said in its report.

The Bank of England passed its fifth consecutive hike in interest rates last week, though it has stopped the aggressive increases in the US and Switzerland, as it looks to deflate inflation without increasing the current recession.

The main bank rate is currently at a 13-year high of 1.25% and the bank expects CPI inflation to exceed 11% by October.

The UK’s energy regulator has raised the domestic energy price limit by 54% since April 1, adjusting for wholesale fuel prices, including a record rise in gas prices, and did not rule out a surplus in its periodic reviews this year.

The cost of living crisis

Paul Craig, portfolio manager at Quilter Investors, said Wednesday’s inflation press is reminiscent of the challenges facing the central bank, government, businesses and consumers.

“Disappointingly, the cost of living crisis is not a short-term business, and it will eventually get the Bank of England stuck between a rock and a hard place,” Craig said.

“While the US acknowledges the need to go hard and fast on interest rates, the Bank of England continues to slow down, trying to keep the economy from recession at a time when businesses and consumers are experiencing a pinch.”

However, he suggested that the bank’s current strategy is doing little to stop inflation, which means “tough decisions are coming soon,” with the bank already hinting at its next big hike.

Bank of England governor Andrew Bailey has called for an “apocalypse” view for consumers, according to a recent survey, with over a quarter of Britons skipping meals due to inflationary pressures and a food crisis.

In addition to the external shocks facing the global economy – food and energy prices rising amid the war in Ukraine and supply chain issues from the chronic Kovid-19 epidemic – the UK is also navigating domestic pressures, such as government unwinding. Financial support and the effects of Brexit on the historical epidemic.

Economists have also flagged the tightening of labor market conditions and headline inflation through the broader economy. The UK is currently involved in massive national rail strikes, and Nobel Prize-winning economist Christopher Pissarides told CNBC on Tuesday that the labor market is “worse than the 1970s.”

Quilters Craig suggested that the government and central bank were closely watching the labor market and not for indications of further strikes on inflation-lagging wage increases.

“Where there is inflation, any sign of job weakness is a big warning sign for the economy,” he said.

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