According to a new survey, more than four in five people in the UK are worried about the rising cost of living and their ability to afford basic necessities like food and energy in the coming months month.
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LONDON — UK inflation hit 9.1% year-on-year in May as soaring food and energy prices continued to deepen the country’s cost of living crisis.
The 9.1% rise in the consumer price index, released on Wednesday, was in line with economists’ expectations in a Reuters poll and slightly higher than the 9% rise recorded in April.
Consumer prices rose 0.7% m/m in May, slightly above expectations for a 0.6% rise but well below April’s 2.5% monthly rise, indicating that inflation is easing somewhat.
In its submissions accompanying Wednesday’s figures, the UK’s Office for National Statistics said its estimates suggested inflation “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 housing and household services, mainly electricity, gas and other fuels, as well as transport (mainly fuel and used cars).
The consumer price index including homeowners’ housing costs (HICP) stood at 7.9% in the 12 months to May, down from 7.8% in April.
“Rising prices for food and non-alcoholic beverages, compared to declines a year ago, made the largest upward contribution to the change in 12-month inflation rates of the HICP and in the CPI between April and May 2022 (0.17 percentage points for the HICP),” the ONS said in its report.
The Bank of England implemented a fifth consecutive interest rate hike last week, but halted ahead of aggressive hikes seen in the United States and Switzerland, as it seeks to tame inflation without worsening the current economic downturn.
The main bank rate currently stands at 1.25%, its highest level in 13 years, and the Bank expects CPI inflation to exceed 11% by October.
Britain’s energy regulator raised the household energy price cap by 54% from April 1 to deal with a spike in wholesale energy prices, including a record rise in fuel prices. gas, and has not ruled out further increases in the cap during its periodic reviews this year.
Cost of living crisis
Paul Craig, portfolio manager at Quilter Investors, said Wednesday’s inflation was a reminder of the challenges facing the central bank, government, businesses and consumers.
“Disappointingly, the cost of living crisis will not be a short-lived affair, and that ultimately leaves the Bank of England stuck between a rock and a hard place,” Craig said.
“While the United States has recognized the need to move fast and hard on interest rates, the Bank of England continues to move at a slower pace, trying not to tip the economy into the recession at a time when businesses and consumers are feeling the effects.”
However, he suggested that the Bank’s current strategy does little to prevent inflation from soaring, meaning “more difficult decisions are coming very soon”, with the Bank already hinting at a hike. more important at its next meeting.
A recent survey showed a quarter of Britons have resorted to skipping meals as inflationary pressures and a food crisis coalesce in what Bank of England Governor Andrew Bailey called a “doomsday” outlook. for consumers.
In addition to the external shocks facing the global economy – such as the spike in food and energy prices amid the war in Ukraine and supply chain issues due to persistent bottlenecks from the pandemic of Covid-19 – the UK is also navigating domestic pressures, such as the government unwinding. historic pandemic-era fiscal support and the effects of Brexit.
Economists also pointed to signs of tightening labor market conditions and headline inflation spilling over to the wider economy. The UK is currently concerned about huge national railway strikes, and Nobel Prize-winning economist Christopher Pissarides told CNBC on Tuesday that the labor market was “worse than it was in the 1970s”.
Quilter’s Craig suggested that the government and central bank will be watching the labor market closely, and not just for indications of further strikes over wage hikes that lag behind inflation.
“With inflation where it is, any sign of weak employment that emerges will be a big wake-up call for the economy,” he said.