ONS figures showed that real wages in the UK in the three months to May experienced the sharpest decline since records began in 2001.
Henry Nicholls | Reuters
LONDON — Inflation in Britain hit another 40-year high in June as food and energy prices continued to soar, escalating the country̵[ads1]7;s historic cost-of-living crisis.
The consumer price index rose 9.4% annually, according to estimates on Wednesday, slightly above a consensus forecast among economists polled by Reuters and up from 9.1% in May.
This represented a monthly increase in consumer prices of 0.8%, which exceeded the previous month’s 0.7% increase, but was still below the 2.5% monthly increase in April.
Britain’s Office for National Statistics said in Wednesday’s report that its indicative modeled estimates of consumer price growth “suggest that the CPI rate would have been higher around 1982, with estimates ranging from nearly 11% in January down to about 6.5% in December.”
The main contributors to the rising rate of inflation came from motor fuel and food, the ONS said, with the previously soaring 42.3% on the year, the highest rate since before the start of the constructed historical series in 1989.
50 basis points increase?
The Bank of England has implemented five consecutive rate hikes of 25 basis points as it looks to tame inflation, but Governor Andrew Bailey, speaking at the Mansion House Financial and Professional Services Dinner on Tuesday, suggested the monetary policy committee could consider a 50 basis point increase at its policy meeting in August.
This would amount to the UK’s biggest single rate rise in almost 30 years, and Bailey vowed there would be “no ifs or buts” in the Bank’s commitment to return inflation to its 2% target. The governor has received public criticism from several of the Conservative Party’s hopefuls to replace Boris Johnson as Prime Minister.
“From a monetary policy perspective, these times represent the greatest challenge to the inflation-targeting monetary policy regime that we have seen in the quarter century since the MPC was established in 1997,” Bailey said.
“That emphatically does not mean that the regime has failed. Far from it. The regime was set up for times just like these. The regime, based on central bank independence, is now more important than ever. The value of any regime is tested in the hard, not the good, times .”
The bank expects inflation to peak at around 11% later in the year, while new ONS figures on Tuesday showed UK real wages in the three months to May saw their sharpest decline since records began in 2001 as pay rises failed to catch up . to the inflation rate.
“The intense cost of living pressures are putting significant pressure on the UK’s consumer-led economy and mean the risk of recession is high,” said Hussain Mehdi, macro and investment strategist at HSBC Asset Management.
“Nonetheless, the Bank of England is likely to remain in uber-hawkish mode as it seeks to counter the risk of a wage-price spiral developing with recent data suggesting a continued warm labor market contributing to domestic inflationary pressures.”