Whilst much of the UK is experiencing its hottest ever weather, the world’s fifth largest economy is also experiencing its highest rate of inflation in forty years.
Figures released by the Office for National Statistics on Wednesday, revealed that annual consumer price inflation increased from 9.1% in May to hit 9.4% in June.
Last month’s rise took the inflation rate to its highest level since February 1982. It was also higher than market expectations with analysts predicting an increase to 9.3%.
June’s data represented a 0.8% monthly incline in consumer prices, surpassing May’s 0.7% increase. However, it still remained short of the 2.5% monthly increase registered in April.
Despite many smaller European Union countries currently seeing even faster growth in prices, the 9.4% CPI rate of the UK is the highest of the G7 – Group of seven advanced economies now and since 1985.
Interest Rate Hikes Ahead?
The sharp rise in inflation has fueled speculation that the Bank of England will choose a 50-bps rate hike next month. If this was the case, this would be the largest single increase since 1995. Brits are struggling to offset rising inflation.
BoE Governor Andrew Bailey said in a speech earlier in this week:
“From the perspective of monetary policy, these times are the largest challenge to the monetary policy regime of inflation targeting that we have seen in the quarter century since the MPC was created in 1997,”
“That emphatically does not mean the regime has failed. Far from it. The regime was set up for times exactly like these. The regime, founded on central bank independence, is now more important than ever. The worth of any regime is tested in the difficult, not the nice, times.”
Hussain Mehdi, macro and investment strategist at HSBC Asset Management commenting on the inflation increase, said:
“The intense cost of living squeeze is putting significant pressure on the UK’s consumer-led economy and means the risk of recession is high,”
“Nevertheless, the Bank of England is likely to remain in uber-hawkish mode as it attempts to counter the risk of a wage-price spiral developing with recent data suggesting a still hot labor market that is contributing to domestic inflationary pressures.”
