British inflation last month reached its highest level in 40 years, according to official statistics, which boosted the chance that the Bank of England will hike interest rates next month by a very unusual half percentage point.
Annual consumer price inflation increased to 9.4% percent in June, according to the National Bureau of Statistics, up from 9.1% percent in May and above the consensus estimate of 9.3 percent in a poll having experts as its participants. This is the highest level since February 1982, which marked a significant landing on Europe’s milestones.
With the most recent increase, Britain seemed to have the worst inflation rate among Group of Seven advanced economies since 1985, while prices are currently rising even more quickly in many smaller European Union nations.
The BoE is widely expected to choose a 50-bps rate increase upcoming month, which is the highest since 1995, as a result of the data released on Wednesday. This week, according to insider sources, the European Central Bank is contemplating taking such a step.
Governor of the BoE Andrew Bailey stated on Tuesday that an increase in borrowing prices was possible but not set in stone.
The BoE has raised interest rates 5 times since December in an effort to prevent the recent spike in inflation from permeating the British economy, and it is anticipated to do so once more on August 4.
According to Suren Thiru, director of economics at accountancy trade group ICAEW, the sky-high and soaring inflation suggests that pressure for a half-point increase in interest rates in August is building.
But too much monetary policy tightening raises the possibility of a recession and does nothing to tackle the global issues causing this inflationary spike.
Investors now predict that the Bank of England will increase the Bank Rate from 1.25 percent to 1.75 percent next month. In June, it declared that if necessary, it would act forcefully.
Core inflation dropped from 5.9 percent in May to 5.8 percent in June, according to the ONS, which should soothe BoE rate-setters who may be hesitant to raise rates more swiftly.
The largest contributors to last month’s inflation, according to the ONS, were a 42 percent increase in gasoline prices year over year and an almost 10 percent increase in food prices, which is devastating for low-income people.
According to the think tank Resolution Foundation, this period’s inflation rate has already reached double digits.
The cost-of-living crisis has triggered a wave of strike disputes by the union movement and sparked intense debate among the three remaining contenders for the position of prime minister to succeed Boris Johnson.
The other candidate, the previous finance minister Rishi Sunak, warns that two are promising immediate tax cuts that could exacerbate inflation.
The data released on Wednesday indicated that inflation would continue to increase.
The ONS said that the prices factories paid for materials and energy in June were 24.0 percent more than a year earlier, the highest figure since this record-keeping began in 1985 and a major factor in the prices ultimately paid by customers in stores.
The increase in factory prices was 16.5 percent, which was the highest since September 1977. Nadhim Zahawi, the current Finance Minister, responded to the data by stating that the government was working with the BoE to address the issue and that Britain was not the only country dealing with out-of-control inflation