U.K. Inflation Hits 40-Year High Of 10% As It Bucks G7 Trend

Topline

Consumer price inflation in the U.K. soared past 10% in July—the highest it has been in 40 years—the U.K.’s statistics office reported on Wednesday, a figure the nation’s central bank expects will rise further later this year and deepen economic pain for households.

Inflation in the U.K. hit a four decade high of 10.1 in July 2022.

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Key Facts

According to the Office of National Statistics (ONS), the U.K.’s consumer prices index (CPI) rose 10.1% in the year to July 2022, up from 9.4% in June, which is the highest it has been since the current statistical model went into effect in 1997.

Estimates by the ONS suggest the last time the country’s CPI rate was higher was back in 1982.

Rising costs of energy and fuel remain the largest contributor to the rise in the annual inflation rate according to the report as Europe continues to reel from Russia’s reduction in energy supply to the continent.

The ONS also noted that rising food prices were the biggest factor in the spike in inflation in July compared to the previous month—with annual inflation in the food and non-alcoholic beverage segment hitting 12.7%.

According to Reuters, the final inflation numbers for the month of July are higher than economists’ forecasts of 9.8%.

Contra

The U.K.’s inflation data for July appears to be somewhat of an outlier among the Group of Seven (G7) nations. Inflation in the U.S., Canada, Germany, and Italy slowed down in July while still remaining at significantly elevated levels. Only France saw its inflation rate rise to 6.1%—up from 5.8% in June—its sharpest rise in 37 years. Japan is the only G7 nation that is yet to release its July inflation numbers.

What To Watch For

Despite hitting a multi-decade high, the U.K.’s inflation rate is expected to rise further with the Bank of England predicting it will breach 13% later this year. Household energy bills are expected to rise significantly in October when the current cap on prices is set to be raised.

Big Number

£4,266 ($5,164). That is the estimated annual price that an average household will have to pay for electricity and gas in January 2023 after the current cap on prices is revised, according to a forecast issued by energy market research firm Cornwall Insight. At present the average household in the U.K. pays just under £2,000 ($2,421), according to Reuters.

Crucial Quote

Britain’s Shadow Chancellor, Rachel Reeves, tweeted: “Families already worried sick about making ends meet will be even more concerned. Labour’s plan to freeze the energy price cap will bring inflation down this winter, and ease the burden on households and businesses.”

Key Background

In an effort to clamp down on inflation the Bank of England announced a 50 basis points interest rate hike earlier this month—its steepest in nearly three decades—to 1.75%. The British central bank said it expects inflation levels to remain “very elevated” throughout the rest of this year and 2023. The BoE also predicted that the U.K. will fall into a recession in the final quarter of this year. Despite the impending recession, the bank insisted that it committed to bringing inflation down to its targeted rate of 2% and economists predict it will announce another 50 basis point hike in September. At the end of July the annual inflation rate in the Eurozone—the bloc of 19 countries that use the Euro—stood at an all-time record of 8.9%. Unlike the U.S.—where inflation has slowed down amid a drop in gasoline prices—Europe continues to face the effects of high energy prices as Russia continues to throttle the supply of natural gas to the region.

U.K. Inflation Hits 40-Year High Of 10% As It Bucks G7 Trend—And It’s Expected To Get Worse