More than four in five people in the UK are concerned about the rising cost of living and their ability to afford basic necessities such as food and energy over the coming months, according to a new survey.
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LONDON – UK inflation hit 9.1% year-on-year in May as rising food and energy prices continue to exacerbate 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 above the 9% increase recorded in April.
Consumer prices rose 0.7% month-on-month in May, slightly higher Expectations are for a 0.6% rise but well below the 2.5% monthly increase in April, indicating that inflation is slowing somewhat.
In its communications alongside the numbers on Wednesday, the UK’s Office for National Statistics said its estimate indicated inflation “could have last been higher around 1982, with estimates ranging from around 11% in January to about 6.5% in December. .”
The largest increasing contributions to the inflation rate have come from housing and household services, especially electricity, gas, and other fuels, along with transportation (mostly motor fuels and used cars).
The Consumer Price Index including cost of landlord occupant housing (CPIH) came in at 7.9% in the 12 months through May, up from 7.8% in April.
“The higher prices of food and non-alcoholic beverages, compared to the decline last year, have led to the largest upward contribution to the change in both CPIH and CPI inflation rates for the 12 months between April and May 2022 (0.17 percentage points for the CPI), the Census Bureau said. in his report.
The Bank of England last week Carried out a fifth consecutive increase in interest ratesalthough it fell short of the steep hikes seen in the US and Switzerland, as they look to tame inflation without compounding the current economic slowdown.
The key bank interest rate currently remains at a 13-year high of 1.25% and the bank expects CPI inflation to exceed 11% by October.
The UK’s Energy Regulatory Authority raised the cap on household energy prices by 54% from April 1 to accommodate higher wholesale energy prices, including record hikes in gas prices, and did not rule out any further increases in the cap in its regular reviews this year.
cost of living crisis
The inflation data released on Wednesday was a reminder of the challenges facing the central bank, government, businesses and consumers, said Paul Craig, portfolio manager at Quilter Investors.
“It is disappointing that the cost of living crisis will not be short-lived, and this ultimately leaves the Bank of England stuck between a rock and a hard place,” Craig said.
“While the US has acknowledged the need to act hard and quickly on interest rates, the Bank of England continues to operate at a slower pace, trying not to push the economy into recession at a time when businesses and consumers are feeling the pinch.”
However, he noted that the bank’s current strategy does little to prevent inflation from escaping, which means that “the hardest decisions will be made very soon,” as the bank has already hinted at an even bigger rally at its next meeting.
A recent survey showed that a quarter of Britons have skipped meals With inflationary pressures and the food crisis merging into what Andrew Bailey, Governor of the Bank of England, described as “appalling” expectations for consumers.
Along with the external shocks facing the global economy – such as rising food and energy prices amid the war in Ukraine and supply chain problems due to the continuing pandemic bottlenecks of Covid-19 – the UK is also dealing with domestic pressures, such as the dismantling of the government. Historical financial support for the pandemic era, and the effects of Brexit.
Economists also noted signs of tightening in labor market conditions and a clearing of core inflation into the broader economy. The UK is currently preoccupied with massive national rail strikes, and Nobel Prize-winning economist Christopher Pissarides told CNBC on Tuesday The job market is “worse than the 1970s”.
Quilter’s Craig noted that the government and central bank will be watching the labor market closely, and not just for indications of more strikes due to delayed wage increases than inflation.
“With inflation at what it is, any sign of weak employment would be a huge warning sign for the economy,” he said.