British inflation hits 40-year high

Photo: Reuters

British annual inflation last month surged to a 40-year high on rising fuel and food prices, official data showed yesterday, adding to a cost-of-living crisis.

The Consumer Prices Index (CPI) last month jumped to 9.4 percent from 9.1 percent in May, the British Office for National Statistics said in a statement.

Analysts said the data put pressure on the Bank of England (BOE) to raise interest rates by as much as 50 basis points at its next policy meeting next month.

The central bank expects British inflation to top double-digit percentages this year.

“In the UK, we saw another eye-popping CPI reading and the pressure is on the BOE to do what it takes before it is too late to control inflation,” Avatrade chief market analyst Naeem Aslam said.

Inflation has soared to the highest level in decades in many countries, fueled by Russia’s war in Ukraine and the easing of COVID-19 restrictions.

That has forced central banks to raise interest rates, risking the prospect of recession as higher borrowing costs hurt businesses and consumers.

The Bank of England has raised its key interest rate five times since December last year, lifting it to 1.25 percent from a record-low 0.1 percent.

The central bank has not increased its rates by more than 0.25 percentage points each time.

However, BOE Governor Andrew Bailey on Tuesday said that “a 50 basis point increase will be among the choices on the table when we next meet.”

Separate data this week showed that soaring inflation has caused the value of British wages to fall at a record pace.

Moreover, the UK is experiencing a summer of strike action as a result of the cost-of-living crisis.

Aircraft refuelers at Heathrow Airport near London are set to strike for three days later this week, while this month sees telecom BT PLC facing its first staff walkout since 1987.

Railway staff are preparing for further stoppages after last month carrying out their biggest strike action in decades.

State-employed lawyers are also striking, while teachers and workers for the British National Health Service are mulling action.

Britain’s retail prices index — which includes mortgage interest payments, and is used by unions and employers when negotiating wage increases — rose to 11.8 percent last month from 11.7 percent in May, the statistics office said.

“More pain is on the way for household budgets as the high rate of inflation continues to outpace wage growth, bringing down the real value of incomes across the UK,” KPMG UK chief economist Yael Selfin said. “We also expect the Bank of England to continue raising the base interest rate, which we now expect to reach 2 percent early next year, to stave off further rounds of inflation rises.”