Rising electricity and gas prices pushed inflation to a 40-year high last month as higher energy price caps took effect.
According to the Office for National Statistics (ONS), the annual rate of CPI inflation rose to 9 percent in April, from 7 percent in March. This is the highest level since 1982. City economists forecast 9.1 percent growth.
Household utility costs rose an average of £ 700 in April.
Grant Fitzner, chief economist at ONS, said: “About three-quarters of the annual growth rate [of inflation] It came from a utility bill this month. “
Liz Truss, the foreign secretary, told Sky News that the jump in living expenses showed that Britain was facing a “very, very difficult economic situation” and a “serious global headwind”.
Sage Sunak, Chancellor, who is under pressure to introduce measures to relieve family stress, said: “We cannot fully protect people from these global challenges but we are providing significant assistance wherever we can and are ready to take further action. “
The FTSE 100 rose 0.08 percent, or 5.5 points, to 7,521.45 this morning. The pound fell 0.4 percent against the dollar and the euro to 24 1.2432 and 0.2 percent to 1.1817 euros, respectively. Brent crude was up 0.5 percent at 2 112.45 a barrel.
Rising global energy prices due to the Ukraine war are responsible for the lion’s share of rising prices affecting UK households. Even before the war, inflation was at an all-time high after the lifting of the Covid-19 lockdown system, which increased transport and energy costs.
Pay packets were also hit by an increase in National Insurance contributions last month, warning some economists that the Bank of England would have to raise interest rates to lower expectations that inflation would remain high. According to Yale Selfin, chief economist at KPMG UK, the risk for policymakers is that the rapid pace of inflation “becomes embedded in wage negotiations, which will put additional pressure on inflation”. Inflation will remain close to this level by the end of the year, he added.
Bank of England rate-setters expect inflation to rise to 10.2 per cent when the energy bill is calculated for the second time this year in October.
The central bank governor told lawmakers on Monday that Russia’s aggression in Ukraine had caused Britain to face rising food prices, which had hampered exports from the country.
Andrew Bailey, who took office in 2020, said he was feeling “very uncomfortable” because the lockdown in China has led to war and supply chain problems, as well as pushing inflation outside the UK.
Ukraine, one of the world’s largest producers of wheat and cooking oil, is struggling to export food because of the conflict, Bailey told Treasury selection committee MPs this week. “This is a big concern not only for this country, but for the developing world,” he said. Grain exports, including wheat and maize, have fallen sharply since the Russian invasion. Wheat prices hit a 14-year high in March.
The Bank of England has raised interest rates to a maximum of 1 per cent since the financial crisis this month and expects it to rise further, but warns that 80 per cent of the current inflationary pressures are driven by global factors beyond the rate maker’s control.
The central bank is also facing a slowdown in UK growth. It expects the economy to slow sharply by the end of the year and it could fall into recession next year, shrinking 0.25 percent. This is less than the bank’s previous forecast of 1.25 per cent growth
According to Pantheon Macroeconomics Consultancy, inflation is expected to ease somewhat this summer. Samuel Tombs, chief economist, said the rate of inflation would come down to about 8.5 percent in August because there was a significant increase in prices when business opened after the lockdown in August last year.
“We think the title rate [consumer prices] Inflation will decline sharply in 2023, in response to the recent fall in shipping costs, reducing demand for desirable products during the epidemic and stabilizing energy prices, “Tombs said.
Paul Dales, the UK’s chief economist at Capital Economics, said the increase “creates more misery in the family and highlights pressure on the Bank of England to raise interest rates”.
He said: “Things are going to get worse before things get better. We anticipate a further 30 percent jump in the Ofgem price cap in October and a combination of other cost (input and wage) increases mean CPI inflation will rise to about 10 percent in October. Inflation is likely to slow down after that, but tight labor markets and high wage growth suggest that it will not return to its 2 percent target on its own. We think the interest rate should go up from 1 percent to 3 percent to do that. ”