In July, inflation rates in the UK recorded a 40-year high because of a continuous increase in energy and food prices, thus exaggerating the nation’s historic squeeze on households.
As per estimations published by the Office for National Statistics (ONS) on the 17th of August, the Consumer Price Index (CPI) increased by 10.1% annually, which is up from the Reuters consensus forecast of an increase of 9.8% and more than 9.4% in June.
Excluding the increasing prices of energy, alcohol, food, and tobacco, core inflation came in at 6.2% from the start of the year to July 2022, as it increased from 5.8% in June and is projected to further surge to 5.9%.
The UK’s 2-year Gilt yields increased on Wednesday morning after the release, as it added over 26 basis points to reach 2.41%, which was recorded as the highest point since November 2008.
The ONS mentioned in its report that increasing food prices have largely contributed to inflation rates for the year between June and July.
Kien Tan, director of retail strategy at PwC, said, “Supermarkets have had little choice but to pass on price increases from suppliers, themselves contending with unprecedented inflation in raw material and ingredient input costs.”
He further added that this mainly had been highly impacted in labor and utility intensive categories such as dairy, as the price of a pint of milk has been sold at more than double the rate in some stores since the year started, as per reports.
According to ONS’s indicative modeled consumer price inflation estimates, it can be said that the CPI rate would last have been at its highest level around 1982, where estimations ranged from around 11% in January, reaching almost 6.5% in December.
The Bank of England implemented six consecutive interest rate hikes as it was concerned about entering inflation. In addition, the Bank recorded its highest single hike since 1995 earlier this month, as it was predicted that the UK is more likely to enter its long-term recession after the global financial crisis in Q4, 2022. The Bank anticipates reaching top inflation levels at 13.3% by October.
As per the latest predictions, the energy pricing level in the UK is likely to increase annually, reaching £4,266 ($5,170), as the current energy prices are at £1,971. The pricing level is expected to increase by more than £3,000 in October following the next review. As a result of these surging energy prices, households are already selecting between either eating or heating.
According to the ONS data published on Tuesday, real wages in the UK declined by 3% annually in Q2 of this year, recording its sharpest decline.
Regardless of average pay, except for an increase in bonuses by 4.7%, living costs surpass wage growth and contribute to restricted household incomes.
Dan Howe, head of investment trusts at Janus Henderson, said that this current increasing inflation rate acts as a warning to several UK households that they are experiencing a time of considerable financial hardship. Consumers are already going through a difficult phase of surging energy and household prices; this is a lack of decisive action at the political level.
Richard Carter, head of fixed interest research at Quilter Cheviot, forecasted that the Bank of England is expected to announce a further rise of 50 Basis-points in its interest rate at its upcoming monetary policy meeting as a response to stand against inflation. He also said that it is certain that the cost-of-living crisis is going to get even worse.
The current situation ultimately indicates that there will be a lot of pressure on the next Prime Minister when it comes to softening the blow dealt by ongoing inflation.