UK inflation has surged to its highest level in 40 years, reaching 9.1% in May, primarily driven by soaring food prices. This places Britain’s inflation rate as the highest among the Group of Seven countries, indicating the severity of the cost-of-living crisis. Economists surveyed by Reuters had predicted this increase, aligning with the consensus.
Historical data from the Office for National Statistics reveals that May’s inflation is the highest since March 1982, and experts warn that the situation is likely to worsen. The depreciation of the pound, which has been one of the worst-performing currencies against the U.S. dollar this year, fell below $1.22, experiencing a decrease of 0.6% in a single day.
Investors are growing increasingly concerned about the risk of persistent high inflation and recession in the UK. The country’s large imported energy bill and ongoing Brexit issues pose potential threats to trade relations with the European Union, which could have a significant impact on discretionary spending in the fashion and beauty sectors.
Jack Leslie, a senior economist at the Resolution Foundation think tank, highlights the challenge policymakers face in determining the potential height and duration of inflation due to the uncertain economic outlook. The Resolution Foundation recently reported that the cost of living for households has been compounded by Brexit, resulting in the UK becoming a more closed economy. They emphasize the detrimental long-term implications for productivity and wages.
In comparison to the United States, France, Germany, and Italy, the UK’s inflation rate in May surpassed all of these countries. Although Japan and Canada have yet to report their consumer price data for May, it is unlikely that either will have a comparable inflation rate.
The Bank of England predicts that inflation will remain above 9% in the coming months, reaching a peak slightly above 11% in October. This is mainly due to an anticipated rise in regulated household energy bills during that month. Finance minister Rishi Sunak reassures the public that the British government is taking necessary action to address the surge in prices.
May saw an increase of 8.7% in the prices of food and non-alcoholic drinks compared to the previous year, marking the largest jump since March 2009. This category played a significant role in driving annual inflation last month. Overall, consumer prices rose by 0.7% on a monthly basis in May, slightly higher than the consensus of 0.6%.
Furthermore, British factory-gate prices, which determine the prices paid by consumers in stores, rose by 22.1% in May compared to the previous year. This marks the largest increase since records began in 1985, according to the Office for National Statistics.
The combination of rising food prices, a weakening currency, and potential Brexit repercussions are pushing UK inflation to alarming levels. It is crucial for policymakers and the government to implement effective measures to address the cost-of-living crisis and ensure stability for households and the wider economy.
Useful links:
1. Office for National Statistics – Inflation and Price Indices
2. Bank of England Official Website
