Figures from the ONS showed real wages in the UK in the three months to May saw their biggest fall since records began in 2001.
Henry Nicholls | Reuters
LONDON — UK inflation hit a new 40-year high in June as food and energy prices continued to soar, deepening the country’s historic cost of living crisis. .
The consumer price index rose 9.4% a year, according to estimates released on Wednesday, slightly above a consensus forecast among economists polled by Reuters and up from 9.1% in May.
This represents a monthly increase of 0.8% in consumer prices, exceeding the 0.7% increase in the previous month, but remaining below the monthly increase of 2.5% in April.
The UK’s Office for National Statistics said in Wednesday’s report that its modeled indicative estimates of consumer price inflation “suggest that the CPI rate would have lasted higher around 1982, where estimates range from almost 11% in January to around 6.5% in December.”
The main contributors to the rise in the inflation rate came from fuel and food, the ONS said, with the former climbing 42.3% on the year, the highest rate since before the start of the historical series built in 1989.
Increase of 50 basis points?
The Bank of England has implemented five consecutive 25 basis point interest rate hikes as it seeks to rein in inflation, but Governor Andrew Bailey suggested in a speech at the Services dinner on Tuesday Financiers and professionals at Mansion House that the Monetary Policy Committee may consider a 50 basis point hike at its August policy meeting.
It would be the biggest UK interest rate hike in nearly 30 years, and Bailey promised there would be ‘no ifs and buts’ to the Bank’s commitment to bringing inflation back to its 2% target. The governor has been publicly criticized by several Conservative Party candidates to replace Boris Johnson as prime minister.
“From a monetary policy perspective, these times are the greatest challenge to the inflation-targeting monetary policy regime that we have seen in the quarter century since the MPC’s inception in 1997,” said Bailey.
“That absolutely does not mean that the regime has failed. Far from it. The regime was set up for times exactly like these. The regime, based on independence from the central bank, is now more important than The value of any diet is tested in the bad times, not the good ones.”
The Bank expects inflation to peak at around 11% later in the year, while new figures from the ONS showed on Tuesday that real wages in the UK in the three months to in May saw their biggest drop since records began in 2001 as wage increases failed to come close. at the rate of inflation.
“Intense pressure on the cost of living is putting significant pressure on Britain’s consumer-driven economy and means the risk of recession is high,” said Hussain Mehdi, macro and investment strategist at HSBC Asset Management.
“Nevertheless, the Bank of England is likely to remain in ultra-hawkish mode as it attempts to counter the risk of a price-wage spiral developing with recent data suggesting a still-hot labor market contributing to domestic inflationary pressures. .”