- UK inflation rose sharply in April, hitting a 40-year high of 9% year-on-year.
- It deepens the UK cost-of-living crisis, where energy bills, and food and fuel prices are all rising.
- It also adds to the chances that the Bank of England will raise interest rates again.
Consumer prices across the UK economy surged by the most in 40 years in April, as rising energy and food bills deepened a cost-of-living crisis that threatens to plunge the country into
later this year.
Year-on-year consumer price index inflation hit 9% in April, the Office for National Statistics said Wednesday, up from 7% in March. The reading was below economists’ forecasts for a rise of 9.1%, but still showed inflation running at its hottest since 1982.
The bulk of the increase came from a sharp rise in utility bills, after the government lifted a price cap in light of how much wholesale energy prices have risen, in part because of the war in Ukraine.
The 12-month inflation rate for gas was 95.5%, while for electricity, it was 53.5%, official figures showed.
“Inflation rose steeply in April, driven by the sharp climb in electricity and gas prices as the higher price cap came into effect,” Grant Fitzner, chief economist at the ONS, said. “Around three-quarters of the increase in the annual rate came from utility bills,” he added.
The Bank of England is forecasting a rise in consumer inflation to 10% later this year — five times higher than its target rate of 2% — that threatens to tilt the UK economy into recession by 2023.
BoE Governor Andrew Bailey on Monday told lawmakers the central bank was powerless in the face of the increase in inflation, 80% of which he said was beyond its control. He warned of an “apocalyptic risk” from soaring food prices this year.
Bailey told lawmakers on the Treasury Select Committee that a “very big income shock” from the increase in the global prices of goods would hit demand in the economy and push up employment.
“After his comments about inflation this week, Andrew Bailey will be pleased to see April’s data come in no worse than expected, although the headline number is quite terrifying and shows just how fast the rate has accelerated,” Neil Birrell, chief investment officer at Premier Miton Investors, said.
“It’s clear the Bank of England has to react forcefully, and the Chancellor will be weighing up just what he can do to help out the beleaguered consumer,” he added.
The government also raised taxes in April to shore up the public finances after the increase in spending to combat the coronavirus crisis.
Earlier this month, the BoE hiked interest rates to 1% from 0.75% — the highest level since 2009 — in a bid to stem inflation. Wednesday’s data suggested it may have to raise rates even more aggressively than previously thought.
“Even allowing for Bank of England governor Andrew Bailey’s rather ham-fisted attempts to caution against sharp rises in wages, markets are now pricing in that the Bank of England will have to raise rates much faster than it would like, as it wrestles with the dilemma of either allowing inflation to slow the economy or raise rates much more quickly to help bring it under control more quickly,” CMC Markets chief strategist Michael Hewson said.
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