U.K. inflation hit 9.1% year-on-year in May as soaring food and energy prices continue to deepen the country’s cost-of-living crisis.
The 9.1% rise in the consumer price index, released Wednesday, was in line with expectations from economists in a Reuters poll and slightly higher than the 9% increase recorded in April.
Consumer prices rose by 0.7% month-on-month in May, slightly above expectations for a 0.6% rise but well short of the 2.5% monthly increase in April, indicating that inflation is slowing somewhat.
In its communications alongside the figures on Wednesday, the U.K.’s Office for National Statistics said its estimates suggested that inflation “would last have been higher around 1982, where estimates range from nearly 11% in January down to approximately 6.5% in December.”
The largest upward contributions to the inflation rate came from housing and household services, primarily electricity, gas and other fuels, along with transport (mostly motor fuel and second-hand cars).
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) came in at 7.9% in the 12 months to May, up from 7.8% in April.
“Rising prices for food and non-alcoholic beverages, compared with falls a year ago, resulted in the largest upward contribution to the change in both the CPIH and CPI 12-month inflation rates between April and May 2022 (0.17 percentage points for CPIH),” the ONS said in its report.
The Bank of England last week implemented a fifth consecutive hike to interest rates, though stopped short of the aggressive hikes seen in the U.S. and Switzerland, as it looks to tame inflation without compounding the current economic slowdown.
The main bank rate currently sits at a 13-year high of 1.25% and the Bank expects CPI inflation to exceed 11% by October.
The U.K.’s energy regulator increased the household energy price cap by 54% from April 1 to accommodate a surge in wholesale energy prices, including a record rise in gas prices, and has not ruled out further increases to the cap at its periodic reviews this year.
Paul Craig, portfolio manager at Quilter Investors, said Wednesday’s inflation print was a reminder of the challenges facing the central bank, government, businesses and consumers.
“Disappointingly, the cost-of-living crisis is not going to be a short-lived affair, and this ultimately leaves the Bank of England stuck between a rock and a hard place,” Craig said.
“While the U.S. has acknowledged the need to go hard and fast on interest rates, the Bank of England continues to plod along at a slower pace, trying not to tip the economy into recession at a time when businesses and consumers are feeling the pinch.”
However, he suggested that the Bank’s current strategy is doing little to stop inflation running away, meaning “harder decisions are coming very soon,” with the Bank already hinting at a larger rise at its next meeting.
A recent survey showed that a quarter of Britons have resorted to skipping meals as inflationary pressures and a food crisis conflate in what Bank of England Governor Andrew Bailey has dubbed an “apocalyptic” outlook for consumers.
Along with the external shocks facing the global economy — such as food and energy price surges amid the war in Ukraine and supply chain problems due to lingering Covid-19 pandemic bottlenecks — the U.K. is also navigating domestic pressures, such as the unwinding of the government’s historic pandemic-era fiscal support, and the effects of Brexit.
Economists have also flagged signs of a tightening of labor market conditions and headline inflation filtering through to the broader economy. The U.K. is currently preoccupied with huge national rail strikes, and Nobel Prize-winning economist Christopher Pissarides told CNBC on Tuesday that the labor market is “worse than the 1970s.”
Quilter’s Craig suggested that the government and the central bank will be watching the labor market closely, and not just for indications of further strikes over inflation-lagging wage rises.
“With inflation where it is at, any sign of employment weakness creeping in will be a big warning sign for the economy,” he said.