- 42% year-on-year rise in petrol prices and 10% increase in food prices increased inflation
- Bank of England to consider 50 basis point hike at its August policy meeting.
Inflation rates worldwide are surging as geopolitical crises and market demands grip the economy. Recently, UK annual inflation surged to a fresh 40-year high in June of 9.4%. The consumer price index (CPI) rose 9.3% annually, up slightly from 9.1% in May.
“The rate has risen sharply over recent months and the June figure was the highest annual CPI inflation rate in the National Statistic series, which began in January 1997,” the UK office of National Statistics (ONS) report reads. The surge is owing to a 0.8% monthly incline in consumer prices, exceeding the previous month’s 0.7% rise but remaining short of the 2.5% monthly increase in April.
The ONS office points out that a 42% year-on-year rise in petrol prices and an almost 10% increase in food prices were the primary reasons for the surge in inflation last month.
“Prices paid by British factories for materials and energy – a key determinant of prices later paid by consumers in shops – were 24.0% higher in June than a year earlier, the biggest increase since these records began in 1985”, the ONS report reads.
Economists state the rising inflation rates put unnecessary pressure on UK’s Central Bank-The Bank of England(BoE), to raise interest rates by as much as 50 basis points, or half a percentage point, at its next policy meeting in August. The Central bank has increased its key interest rate five times since December, with hikes of a maximum of a quarter of a percentage point till now.
Commenting on the possible spike in interest rates, BoE governor Andrew Bailey stated, “a 50-basis-point increase will be among the choices on the table when we next meet”. Bailey further stressed that the Bank of England is committed to returning inflation to its 2% target.
In addition to shocks facing the global economy — such as food and energy price surges amid the Ukraine war and supply chain problems due to the Covid-19 pandemic crisis— the U.K. is also navigating domestic pressures, including the unwinding of the government’s historic pandemic-era fiscal support, the effects of Brexit and ever-increasing political turmoil.
Recently, U.S. consumer inflation accelerated to a four-decade high of 9.1% in June, adding increased pressure on the Federal Reserve to act aggressively to slow rapid price increases throughout the economy.