UK inflation has soared to a new 40-year high as fuel and food prices turned the tide on struggling families.
The headline CPI rate climbed to a staggering 9.4 percent in June, up from 9.1 percent the previous month.
The rise was even larger than analysts expected and marks another peak since February 1982.
To add to the pain for householders, the Bank of England has indicated it will hike interest rates by a further 0.5 percentage point to 1.75% next month to counter rising prices.
The CPI rate is expected to rise to about 11 percent in the fall when the energy bill ceiling is set to rise again.
The bank’s target is inflation of just 2 percent, and new Chancellor Nadhim Zahawi has warned that public sector salaries must be restrained to avoid a catastrophic spiral.
Treasury Secretary Simon Clarke warned in a round of interviews this morning that giving in to union demands for huge hikes would result in a “replay of the 1970s action”.
The headline CPI rate climbed to a staggering 9.4 percent in June, up from 9.1 percent the previous month. The rise was even larger than analysts expected and marks another peak since February 1982
The latest ONS data showed motor fuel costs rose 42.3 percent in the 12 months to June – the biggest jump on record.
Average petrol prices last month were 184 pence a liter, up 18.1 pence since May alone, while diesel rose 12.7 pence to 192.4 pence a liter, also a record.
Britons are also being hit by sharply higher food bills, with food and non-alcoholic beverage prices rising 9.8 per cent in the year to June 2022 – the highest rate since March 2009.
Grocery prices rose 1.2 percent mom in June, following similar increases in April and May as higher cost pressures and the fallout from the Ukraine war seep through to supermarket shelves.
According to the ONS, the largest upward effect came from staples such as milk, cheese and eggs, but large increases in prices were also seen for vegetables, meat and other foods such as ready meals.
Add to that staggering hikes in gas and electricity tariffs, with annual inflation at a record 70.2 percent and more hikes to come.
Grant Fitzner, Chief Economist at the ONS, said today: “Annual inflation has risen again to its highest level in over 40 years.
“The increase was driven by rising fuel and food prices, only marginally offset by falling used car prices.
“The cost of both raw materials and goods leaving factories continued to rise, driven by higher metal and food prices respectively.
“These increases caused commodities to post their highest annual rise on record, with finished goods hitting a 45-year high.”
Mr Zahawi said: “Countries around the world are fighting higher prices and I know how difficult that is for people here in the UK, so we are working with the Bank of England to try to curb inflation.
“We have introduced £37 billion in aid to households, including at least £1,200 for 8 million of the most vulnerable families and collecting over two million more of the lowest-paid personal taxes.”
Speaking in London last night, Mr Bailey said a stronger rate hike will be one of the options to be discussed at the next meeting of Bank of England policymakers.
He said a 50 basis percentage point hike – which would take rates from 1.25% to 1.75% – is on the table as part of his pledge to “act forcefully” if inflation shows signs of that it enters the economy.
However, Unite general secretary Sharon Graham warned against not tolerating wage increases below the rate of inflation.
“Workers have had springs, summers, autumns and winters of discontent for years. We now have record inflation to hit record temperatures,” she said.
“Average wages are now falling at their fastest rate in 20 years. Unite will not stand by and let workers pay for a crisis they did not create.”
Shadow chancellor Rachel Reeves said the inflation figures show that more than “stick-ups” are needed to fix the economy.
“The cost-of-living crisis is worrying families more every day, but all we’re getting from the Tories is chaos, distraction and unfounded fantasy economy,” she said.
“Rising inflation may be taking family finances to the brink, but the low-wage spiral faced by so many in Britain is not new.
“It is the result of a decade of Tory mismanagement of our economy, which means living standards and real wages have not grown.”
Anna Leach, deputy chief economist at the Confederation of British Industry, warned that inflation is likely to remain high for the remainder of the year and “will severely impact strained household incomes”.
She said: “This data underscores the need to give people more control over their energy bills: by accelerating power infrastructure planning decisions and creating national efforts to help households better insulate their homes.
“But to build longer-term resilience to price shocks, the government needs to focus on increasing the economy’s supply potential.
“Incentivizing investment through a permanent successor to the super deduction and supporting green infrastructure development are critical first steps.”
Bank of England Governor Andrew Bailey has hinted at a 0.5 percentage point hike in interest rates
Analysis: Hotter inflation raises rate hike expectations
BY SUSANNA STREETER
With inflation at 9.4 per cent, there is no escaping the heat in the economy and it will make policymakers at the Bank of England sweat.
They face the extremely tricky task of chilling prices quickly without pushing growth into the freezer zone.
The economy badly needs a bucket of ultra-cold water, but the job market is still scorching hot and promises of tax cuts by prime ministerial candidates risk prices staying high as demand for goods and services rises remains.
There’s a growing chance this new searing reading will mean the Bank of England will hike rates by 0.5 percent at the August meeting.
Bank of England Governor Andrew Bailey has reiterated that inflation is the clear and present threat to the economy.
Speaking at Mansion House last night, he stressed that this would remain the focus and that there were no ifs or buts in the bank’s commitment to the 2 per cent target.
There is also growing expectation that the European Central Bank will also hike rates by up to 0.5 percent tomorrow to try to ease the eurozone’s own inflationary migraine.
The concern is that the higher borrowing costs this would entail could pose further problems for indebted countries like Italy. As such, a plan appears to be underway to offer special support to bond markets to ensure no new financial problems arise.
Susannah Streeter is a senior investment and market analyst at Hargreaves Lansdown
