UK inflation rises to 9.1% for May

Consumer Prices Index stands at highest point in 40 years after slight increase from 9%

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Inflation in the UK hit an annual rate of 9.1 per cent in May, data showed on Wednesday, a new 40-year high, after broad increases in the cost of everything from fuel and electricity to food and beverages.

The rate of Consumer Prices Index inflation was up slightly from 9 per cent in April, the Office for National Statistics said, the highest rate out of the Group of Seven countries and underlining the severity of the cost-of-living crunch.

Rising prices of food and non-alcoholic beverages, compared with falls a year ago, resulted in the largest upward contribution, it said.

Prices rose 0.7 per cent in the month alone, less than the 2.5 per cent pace recorded in April.

The increase matches what analysts had expected and pushes the measure to its highest since early 1982.

The change was in large part driven by the increase in food prices, which added more than 0.2 percentage points to the inflation number, the ONS said.

Retail prices climbed more than expected to 11.7 per cent, and there were also more signs of inflationary pressures building at the wholesale level, with raw material costs increasing the most on record.

Clothing and footwear prices helped to keep a lid on inflation while recreation and culture prices also pulled it downwards.

While the jump was smaller than what was recorded in recent months, the figures still underline the scale of inflation crisis facing the UK.

It is set to reach double figures before the end of the year, when another energy price increase kicks in. The Bank of England has forecast price gains will surge above 11 per cent in October.

“Though still at historically high levels, the annual inflation rate was little changed in May,” said ONS chief economist Grant Fitzner.

“Continued steep food price rises and record high petrol prices were offset by clothing costs rising by less than this time last year, and a drop in often fluctuating computer games prices.

“The prices of goods leaving factories rose at their fastest rate in 45 years, driven by widespread food price rises, while the cost of raw materials leapt at their fastest rate on record.”

The runaway inflation rate is setting the backdrop for a tumultuous summer for the central bank and Prime Minister Boris Johnson’s government. About 60 per cent of adults have reported that they are spending less on non-essential items in response to rising costs.

Chancellor of the Exchequer, Rishi Sunak, said: “I know that people are worried about the rising cost of living, which is why we have taken targeted action to help families, getting £1,200 to the eight million most vulnerable households.

“We are using all the tools at our disposal to bring inflation down and combat rising prices. We can build a stronger economy through independent monetary policy, responsible fiscal policy, which doesn’t add to inflationary pressures, and by boosting our long-term productivity and growth.”

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The economy is on course to shrink for the first time since the pandemic while consumers are seeing their incomes squeezed at the sharpest pace in two decades, with a series of rail strikes bringing the nation to a standstill this week.

The biggest rail strike in 30 years brought the country to a halt, with the 40,000 RMT union members walking in a row over a below-inflation pay offer.

Lawyers in England and Wales having voted to walk out from next week in a row over legal aid funding.

Teaching staff, workers in the state-run National Health Service and the postal service are also mulling strike action.

The rise will add to the difficulties faced by many people across the UK. Energy bills rose by 54 per cent for the average household at the beginning of April and will remain at this level until October.

But forecasts released this week predict that the government cap on energy bills could rise again from an already record high £1,971 to £2,980 in the autumn.

While Mr Johnson has introduced a package of measures to help offset some of the jump in energy bills, the government says increasing pay to match inflation is not an option.

Mr Johnson told his Cabinet on Tuesday that his government seeks to enforce pay restraints on public sector workers or else push prices even higher.

Meanwhile the Bank of England, which says it can do nothing to stop the sharp increase in prices this year, is adding to the short-term pain of some households by raising rates at an unprecedented rate.

Policymakers have already announced five straight increases, and markets are bullish that rates will more than double to hit 3 per cent by the end of the year.

Chief economist Huw Pill said policymakers would sacrifice growth in order to bring down inflation in the UK, saying there is a risk of prices developing a “self-sustaining momentum”.

Yael Selfin, chief economist at KPMG UK, said: “No signs yet of inflation receding. Inflation continues to rise, primarily driven by external factors, with price rises spread widely across the economy.”

Paul Dales, chief UK economist at Capital Economics, predicted: "The modest rise in CPI inflation... won't prevent the Bank of England from raising interest rates further, but it may encourage it to opt again for a quarter-point rate hike at its next meeting in August rather than upping the ante" with a half-point rise."

Naeem Aslam, chief market analyst at Avatrade, said: “Inflation readings in the UK are moving in one direction, which is to the upside and pushing consumers further and further in the corner. There is no doubt consumers are badly squeezed by higher inflation numbers and there is no sign of any peak in sight.

“Today’s economic data suggests that things are likely to become a lot more ugly in the UK and lawmakers really need to get their act together if they want to save the UK economy from a major depression.”

Alice Haine, personal finance analyst at online investment company Bestinvest, said it was only a taste of what is to come.

“With the Bank of England warning that inflation might exceed 11 per cent later this year when energy costs are set to soar in October in line with Ofgem’s expected increase in the price cap to £2,800, the situation is set to get much, much worse,” she said.

“Inflation at a 40-year high is making it increasingly difficult for people to balance their finances as price rises eat away at their spending power. You only need to look at the strike action sweeping the UK right now to understand the damaging impact of rising prices on household budgets.

“While Rishi Sunak’s cost-of-living handouts may ease the burden slightly for some, with the first payments to the most vulnerable households starting next month, the latest inflation increase comes at a time when real wages dropped 2.2 per cent on average in the three months through to April — the biggest decline since 2011.

“With the inflationary pressures largely driven by soaring food, fuel and energy prices — set against the backdrop of the war in Ukraine and the global supply chain challenges — there is little hope in the near-term for consumers who are hoping things will get better soon.”

Updated: June 22, 2022, 10:04 AM
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