LONDON: Consumer price inflation in Britain jumped to 10.1 per cent in July, the highest since February 1982, making it the first major rich economy to see price growth hit double digits as surging food costs intensified a squeeze on household budgets.
The increase from June’s annual rate of 9.4pc was above all economists’ forecasts in a Reuters poll and fuelled bets by investors that the Bank of England will keep on hiking interest rates quickly.
Despite warning this month that a recession was likely, the BoE raised its key rate by 0.5pc to 1.75pc – its first half-point rise since 1995. It saw inflation peaking at 13.3pc in October, when regulated household energy prices are next due to rise.
Citi economist Benjamin Nabarro said that, after the latest figures, he now expected inflation to peak above 15pc early next year.
“With the Bank focused on signs of more persistent inflationary pressures, we think a hawkish reaction is now all but inevitable,” he added.
Most economists in a Reuters poll earlier this week already expected the BoE to raise interest rates by a further half point to 2.25pc after its next meeting in September.
Two-year British government bond yields – which are sensitive to interest rate expectations – hit their highest since 2008 and investors priced in BoE rates peaking at 3.75pc around March 2023, up from 3.25pc previously.
Priority
Britain is not alone in facing soaring price growth but it is the first in the Group of Seven economies to experience inflation above 10pc.
There are signs too that it will struggle with rising inflation for longer than other economies, including peers in Europe, where energy prices have leapt following Russia’s invasion of Ukraine.
Many economists believe US inflation has already topped out after it dropped to 8.5pc in July from a four-decade high of 9.1pc in June.
British finance minister Nadhim Zahawi said fighting inflation was his top priority and the government was working on options to reduce household energy bills.
Yesterday’s figures from the Office for National Statistics (ONS) showed that prices rose 0.6pc in July from June on a non-seasonally adjusted basis.
A 12.6pc rise in annual food prices – the biggest since 2008 – was the main cause of the jump in CPI inflation from June to July, while higher energy and petrol prices were the main driver over the year as a whole. Takeaway meals cost more, as did package holidays.
The annual rate of retail price inflation – an older measure which is still widely used in commercial contracts and to set rail fares and government bond payments – hit its highest since March 1981 at 12.3pc.
Surging energy prices in Europe are the main driver of inflation and are likely to tip Britain into a lengthy, if shallow, recession, later this year, according to the BoE.