UK inflation at 9% hits 40-year high

UK inflation hit 9% in April, its highest level in more than 40 years, after rising gas and electricity bills intensified the cost-of-living crisis for families.

The rate of consumer price inflation is nearly double what the Bank of England expected just six months ago.

With economic activity slowing sharply during the first quarter, the UK economy is experiencing its worst bout of stagflation – weak growth coupled with high inflation – since the second oil shock in the 1970s.

CPI inflation rose from 7% in March to 9% in April, the highest level among the G7 countries and one of the highest among advanced economies.

It is predicted that it will still increase next fall, to more than 10%.

The sharp rise in the cost of living will put pressure on Chancellor of the Exchequer Rishi Sunak to accelerate promised measures to help the poorest families and retirees weather prices that are rising much faster than their incomes.

In response to the figures, Sunak released a statement blaming energy prices for the global shocks. “We cannot fully protect people from these global challenges, but we are providing significant support where possible and we are ready to take further steps,” he said.

The Office for National Statistics (ONS) said the 54% rise in Britain’s energy price ceiling in April caused nearly three-quarters of the inflation rate to rise that month, but prices also rose rapidly. in almost all expenditure categories and in industrial products.

Grant Fitzner, chief economist at the ONS, said rising raw material prices were reinforcing pressure on manufacturers to pass on their high costs. “This was driven by increases in food products, transportation equipment and metals, machinery and equipment,” he said.

With inflation well above the Bank of England’s 2% target and the price of services up 4.7% year-on-year, ample evidence that inflation is getting more persistent is likely to add strength to those who want the central bank raise interest rates further to cool the economy.

Kitty Ussher, chief economist at the Institute of Directors, said that for business leaders the weak economy is “the number one negative issue”, which makes them “more reluctant to invest, piling up problems for the economy in the future”.

According to an Accenture Business Attitudes survey, only 9% of consumer executives believe their clients have less disposable income than they did a year ago, and just a fifth think their clients are having financial problems.

Using figures from the ONS on Wednesday (18), the Instituto de Estudos Fiscais showed that the 54% increase in energy prices resulted in a much higher inflation rate for the poorest households, who spend a greater proportion of their income from gas and electricity than the richest.

Heidi Karjalainen, an economist at the institute, estimated that inflation for the poorest 10% of British households was 10.9% in April, compared with 7.9% for the richest 10% of households. With state benefits rising just 3.1% in April, that meant “big cuts in real terms in living standards,” Karjalainen said.

The Bank of England this week sought to avoid blame for runaway inflation. Andrew Bailey, governor of the BoE, blamed global shocks for rising prices and said “there’s not much we can do about it.”

Yael Selfin, chief economist at KPMG in the UK, said: “The Monetary Policy Committee [do banco] will insist on showing that it can keep inflation expectations anchored further ahead. The main risk for policymakers is if the current high pace of inflation is factored into wage negotiations, which will put additional pressure on prices to rise.”

Retail price inflation, using a discredited measure that still underpins the cost of indexed public debt, rose to 11.1% in April, also a 40-year high.

Translated by Luiz Roberto M. Gonçalves