Liz Truss and Rushi Sunak during The Sun’s Showdown: The Fight for No10, the final one-on-one debate for the Conservative Party leadership candidates. The next Prime Minister will be forced to face a historic cost of living crisis as food and energy prices soar and real income declines.
Dominique Lipinski | Pa pictures | Getty Images
LONDON — UK inflation hit a new 40-year high in July as soaring food and energy prices continued to intensify the country’s historic pressure on households.
The consumer price index rose 10.1% a year, according to estimates released by the Office for National Statistics on Wednesday, above a Reuters consensus forecast of 9.8% and down from 9, 4% in June.
Core inflation, which excludes energy, food, alcohol and tobacco, stood at 6.2% over the year to July 2022, compared to 5.8% in June and ahead of projections by 5.9%.
British 2-year gilt yields surged Wednesday morning after the release, adding more than 26 basis points to 2.41%, their highest level since November 2008.
Rising food prices made the biggest contribution to rising annual inflation rates between June and July, the ONS said in its report.
“Supermarkets have had no choice but to pass on price increases from suppliers, themselves facing unprecedented inflation in raw material and ingredient costs,” said Kien Tan, chief strategy officer of retail at PwC.
“This has been particularly acute in labour-intensive and utility categories like dairy, with reports that the price of a pint of milk has more than doubled in some stores since the start. of the year.”
The ONS repeated that its modeled indicative estimates of consumer price inflation “suggest that the CPI rate would have lasted higher around 1982, where estimates range from nearly 11% in January to around 6, 5% in December”.
The bank of england implemented six consecutive interest rate hikes in an effort to contain inflation, and earlier this month launched its biggest increase since 1995 while projecting that the UK will enter its longest recession since the global financial crisis in the fourth quarter of the year.
The Bank expects inflation to peak at 13.3% in October. Conservative Party leadership candidates Liz Truss and Rishi Sunak, one of whom will succeed Boris Johnson as prime minister on September 5 after a poll of party members, are under increasing pressure to offer sweeping solutions to the historic crisis in the cost of living in the country.
Latest forecasts suggest the UK energy price cap could rise to £4,266 ($5,170) a year early next year from £1,971 currently, with many households already choosing between heat and eat. The cap is expected to rise to over £3,000 in October after the next review.
Real wages in the UK have fallen by 3% per year in the second quarter of 2022, according to ONS data released on Tuesday, the largest decline on record.
Despite average compensation excluding bonuses up 4.7%, the cost of living far exceeds wage growth and squeezes household income.
“Today’s inflation figures are a reminder to many UK households that they are facing a period of considerable financial difficulty,” said Dan Howe, head of investment trusts at Janus Henderson.
“Consumers are already grappling with rising energy costs and soaring household prices, all compounded by a lack of decisive policy action. electricity, there is no doubt that tough decisions lie ahead for British families.”
Richard Carter, head of fixed interest rate research at Quilter Cheviot, predicted the Bank of England will likely respond at its next monetary policy meeting with another 50 basis point interest rate hike. in an effort to fight inflation, and said there is no doubt that the cost of living crisis will get worse before it gets better.
“As such there will no doubt be a lot of pressure on the next Prime Minister to help soften the blow and the Bank of England will continue to have a very difficult job on its hands,” he said. added.