Inflation in the UK racked up a new 40-year high on Wednesday, with the CPI index rising to 10.1 per cent in July.
It is a significant jump from 9.4 per cent in June and puts further strain on British households.
The figures, released by the Office for National Statistics, were higher than anticipated by economists and will add to fears of a looming recession as the cost-of-living crisis squeezes ever tighter. A rise of 9.8 per cent had been predicted.
The increase was largely down to the price of food and other staple goods, including toilet rolls and toothbrushes, the ONS said.
It is the highest figure since February 1982, when the CPI reached 10.4 per cent, according to ONS estimates.
On Tuesday, ONS statistics showed UK workers' real pay lagged behind inflation at record levels over the past quarter.
But worse is yet to come, according to experts.
Inflation is expected to peak later this year at 13.3 per cent and will push the UK into a recession, according to the Bank of England.
The Bank raised interest rates from 1.25 per cent to 1.75 per cent earlier this month, the largest increase in nearly three decades, as it tries to get a grip on spiralling inflation and bring it back to its target of 2 per cent.
Bank of England governor Andrew Bailey has signalled he is prepared to raise interest rates further. Mr Bailey has blamed the jump in inflation on Russia choking off supplies of natural gas, raising the cost of electricity across Europe.
The two contenders seeking to replace Boris Johnson as prime minister are promising further aid to those struggling to pay their bills, as the state of the economy dominates the race.
Former Cabinet minister Sajid Javid, who is supporting Foreign Secretary Liz Truss in her leadership bid, said she “will act very quickly” on the economy through an emergency budget if made prime minister.
Mr Javid told Sky News: “Tax cuts, I think they are especially important for long-term growth. We can’t tax our way into growth and she’s set that out.
“She’s also announced she’s going to freeze the energy levies on bills for at least a year.”
But Conservative peer and chairman of supermarket chain Asda Lord Stuart Rose said inflation is “a crisis that is not about to go away”.
He told BBC Radio 4’s Today programme: “Inflation is pernicious. It erodes wealth and erodes wealth over time. And if we don’t kill it, as soon as possible, we’re all going to pay the price.”
He said he thinks a recession is “inevitable”.
He added: “We have been very, very slow in recognising this train coming down the tunnel and it’s now here. And it’s not only about to run us over, it’s run quite a lot of people over, and we now have to deal with the aftermath of that.”
Speaking about Mr Johnson, who has been criticised for taking two holidays during the final weeks of his premiership, Lord Rose said: “We’ve got to have some action. The captain of the ship is on shore leave, nobody’s in charge at the moment.”
Adrian Lowery, financial analyst at UK wealth manager Evelyn Partners, said: “With inflation, bad news is bad news, and this reading makes another 0.5 per cent base rate hike a consideration for the Bank of England at its next monetary policy committee on 15 September.
“The increasing cost of servicing mortgage debt is inflicting something of a double-whammy for homeowners, and particularly those with larger loans that are coming up for renegotiation in the coming year.”
The inflation increase comes before the energy price cap ― which regulates what more than 20 million households pay for their gas and electricity ― increases in October.
The cap is expected to be set around £3,635 ($4,401), according to the latest predictions. This would be an 84 per cent rise on today’s already record-high price cap.
ONS chief economist Grant Fitzner said a wide range of price increases drove inflation, with food prices rising notably, particularly dairy products, meat and vegetables. Items such as pet food and deodorants also rose in price.
He said that — driven by higher demand — package holiday prices rose, after falling at the same time last year. Air fares also increased.
Mr Fitzner said: “The cost of both raw materials and goods leaving factories continued to rise, driven by the price of metals and food.”
The price of goods produced by UK factories rose 17.1 per cent in the year to July 2022, the statistics showed.
This is up from 16.4 per cent in the year to June 2022, the highest the rate has been since August 1977, when it reached 17.8 per cent.
Responding to the rise in inflation, Chancellor Nadhim Zahawi said: “I understand that times are tough, and people are worried about increases in prices that countries around the world are facing.
“Although there are no easy solutions, we are helping where we can through a £37 billion support package, with further payments for those on the lowest incomes, pensioners and the disabled, and £400 off energy bills for everyone in the coming months.
“Getting inflation under control is my top priority, and we are taking action through strong, independent monetary policy, responsible tax and spending decisions, and reforms to boost productivity and growth.”
Rocio Concha, director of policy and advocacy at Which?, said: “These figures underline the scale of the cost-of-living crisis and make clear that millions of people face a dire financial situation in the months ahead.
“With bills set to rise further, it’s clear that the current level of cost-of-living government help will not be sufficient."
Matthew Ryan, head of market strategy at global financial services firm Ebury, said: “Today's data leaves the Bank of England stuck in a bit of a quandary, with multi-decade high inflation accompanied by an economy expected to enter into a deep recession in 2023.”
He added that “another 50 basis-point interest rate hike is effectively guaranteed at the bank's next meeting in September”.
Rail princes hit by inflation
Meanwhile, the inflation figure usually used to determine annual increases in some train fares has risen to its highest in nearly 40 years.
The ONS data showed July’s Retail Price Index inflation was 12.3 per cent — up from 11.8 per cent the previous month and the highest since January 1982.
July’s RPI figure is traditionally used by the UK, Scottish and Welsh governments to set the cap on the following year’s increase in regulated train fares, which include most season tickets on commuter routes.
But the Department for Transport announced on Monday that the 2023 increase in regulated fares in England will be below the inflation measurement.
