The inflation rate in the UK rises to 30 years high as cost pressures continue
Shoppers walking along Oxford Street in London December 21, 2021.
Tolga Akmen | AFP | Getty pictures
LONDON – The UK inflation rate rose to a 30-year high in December as higher energy costs, resurgent demand and supply chain problems continued to drive up consumer prices.
Inflation reached 5.4% annually, the highest since March 1[ads1]992 and up from 5.1% in November, even a decade high. Economists asked by Reuters had expected an increase of 5.2 percent.
On a monthly basis, consumer prices rose 0.5%, exceeding economists’ estimates for an increase of 0.3%.
The rising cost of living is raising expectations that the Bank of England will look to raise interest rates again. In December, the BOE became the first major central bank to start raising borrowing costs from their lowest level in the pandemic.
The markets will follow closely the Monetary Policy Committee’s next meeting on 3 February, with decision-makers considering a new interest rate increase after raising 15 basis points to 0.25% in December.
The bank also operates on the basis of a remarkably tight labor market, with record-high vacancies and employment remaining below pre-pandemic levels.
Paul Craig, portfolio manager at Quilter Investors, said that December’s press confirmed the Bank of England’s decision to raise interest rates, but the February meeting could still go both ways.
“MPC will be faced with a difficult trade-off between ensuring financial stability or helping households cope with a cost-of-living crisis that is set to put pressure on households’ finances over a difficult winter period,” he said.
“It’s not just the cost of living that is rising, it is the cost of going to work, and wage increases may not be enough to cover the cost of returning to normalcy.”
The Office for National Statistics also released figures on Tuesday that showed annual wage growth of 3.8% in December, indicating that workers are facing a real wage cut, and Craig suggested that there is now a “very real concern” about workers’ poverty . growing.
The consumer price index including homeowners’ costs (CPIH) rose by 4.8% in the 12 months to December, said ONS, up from 4.6% in November and the highest since September 2008. The largest contributions came from homes and households. services and transport.
Ambrose Crofton, global marketing strategist at JPMorgan Asset Management, said that the upside surprises of both the headline and the core inflation readings would further the Bank of England’s discomfort with its current political stance.
“There is no doubt that prices are rising due to factors that should be moderated over time, including rising energy costs and supply chain problems,” Crofton said.
“But in the short term, consumers will still feel the pinch as price increases may get worse before getting better – especially with the energy price target set to increase by around 50% in April.”
He suggested that wage growth would help “ease the squeeze” from rising prices, but could end up stimulating a period of sustained inflation above target.
