Britain's inflation rate rose at an annual rate of 5.5 per cent in January, taking prices to a fresh 30-year high and pushing living costs up further for households already struggling with higher energy bills and interest rates.
Inflation was up from December's rate of 5.4 per cent, driven by higher clothing and footwear prices, according to the Office for National Statistics, with the Bank of England expecting inflation to hit 7.25 per cent in April — more than triple its 2 per cent target — when a 54 per cent surge in energy bills and higher taxes take effect.
Rising prices for fuel, second-hand cars and increased tobacco duty also helped to drive up inflation in January.
“The rising costs of some household goods and increases in rents also pushed up inflation. However, these were partially offset by lower prices at the pump, following record highs at the end of 2021,” said ONS Chief Economist Grant Fitzner.
Inflation, which has rocketed from just 0.4 per cent a year ago, has overshot forecasts in seven out of the past nine months, with the latest figures along with buoyant employment data this week strengthening the case for the BoE to raise interest rates by 50 basis points next month, an unprecedented move since it gained independence in 1997.
Laith Khalaf, head of investment analysis at AJ Bell, said inflation is here to stay and is on track to tip over 7 per cent in April, heaping even more pressure on consumers, businesses and savers.
“The elevated figures we are seeing today are effectively sunk costs, reflecting prices rises which have already happened, but what’s just as concerning is there’s more inflationary pressure to come,” said Mr Khalaf.
“The BoE expects inflation of over 5 per cent in the next year, and on top of the 5.5 per cent we’ve just witnessed, that adds up to a double digit hit to consumer purses in just two years.”
ONS data released on Tuesday showed British living standards declined at the fastest pace in almost eight years in December, as average pay increases rose less than the increase in consumer prices.
The squeeze on living standards will only worsen in April when the energy price cap — the maximum suppliers are allowed to charge in a year — goes up by £693 ($938), at the same time as a National Insurance increase of 1.25 per cent begins.
Chancellor of the Exchequer Rishi Sunak said the government understands the pressures people are facing with the cost of living, but insisted the situation was caused by “global challenges".
“We have listened to people’s concerns and recently stepped in to provide millions of households with up to £350 to help with rising energy bills,” Mr Sunak.
“We’re also helping people on the lowest incomes keep more of what they earn by cutting the Universal Credit taper rate, and freezing … fuel duties to keep costs down. In total we’re providing support with the cost of living worth over £20 billion across this financial year and next.”
However, analysts fear this may not go far enough to ease the pressure on household budgets.
“With every confirmation of the inexorable increase in price rises, it becomes harder for families to see beyond getting through the next week, never mind the next few years,” said Becky O’Connor, head of pensions and savings at interactive investor.
“Surviving the here and now makes future-proofing harder. Life plans are being put on hold as daily living costs increasingly suck up earnings and benefits. For many, there is little if anything left to play or plan with.”
Alpesh Paleja, lead economist at business organisation CBI, said while the government's move to moderate the impact of energy price rises on the most vulnerable was encouraging, the squeeze on household budgets is expected to weigh on economic growth.
“Looking beyond the near term, it’s clear that the UK is caught in a low growth trap, and the only way to get out is a relentless focus on productivity. Measures like a 100 per cent permanent investment deduction and a future-focused approach to regulation and skills are vital to help us avoid another lost decade of growth,” Mr Paleja said.
“Enhancing the economy’s growth potential is the only way to withstand future inflationary shocks and deliver a sustained boost to living standards.”
Meanwhile, Dawood Pervez, managing director of Bestway Wholesale, the UK’s largest independent cash and carry that works with 70,000 retailers, said the year ahead would be “tough” for his business and also difficult for retailers who would inevitably pass on extra costs to consumers.