Dominic Lipinski | Pa Images | Getty Images LONDON — UK inflation rose to another 40-year high in July as spiraling food and energy prices continued to add to the country’s historic pressure on households. The consumer price index rose 10.1 percent annually, according to estimates released by the Office for National Statistics on Wednesday, above the Reuters consensus forecast of 9.8 percent from 9.4 percent in June. Core inflation, which excludes energy, food, alcohol and tobacco, was 6.2% in the year to July 2022, up from 5.8% in June and ahead of forecasts for 5 .9%. British 2-year Gilt yields rose on Wednesday morning after the release, adding more than 26 basis points to 2.41%, their highest since November 2008. Rising food prices made the biggest upward contribution to annual inflation rates between June and July, the ONS said in its report. “Supermarkets have had no choice but to pass on price increases from suppliers, themselves facing unprecedented inflation in raw materials and ingredient input costs,” said Kien Tan, director of retail strategy at PwC. “This has been particularly pronounced in labour-intensive and utility categories such as dairy, with reports of the price of a liter of milk having more than doubled in some stores since the start of the year.” The ONS reiterated that its indicative modeled estimates of consumer price inflation “suggest that the CPI would have been higher around 1982, with estimates ranging from almost 11% in January to around 6.5% in December”. The Bank of England has implemented six consecutive rate hikes as it tries to rein in inflation and earlier this month launched its biggest single hike since 1995, while predicting the UK will enter its deepest recession since the global financial crisis in the fourth quarter of the year. The Bank expects inflation to rise to 13.3% in October. Conservative leadership candidates Liz Truss and Rishi Sunak, one of whom will succeed Boris Johnson as prime minister on September 5 following a poll of party members, are under increasing pressure to deliver radical solutions to its historic cost-of-living crisis country. The latest forecasts show that the UK energy price cap could rise to £4,266 ($5,170) a year early next year from the current £1,971, with many households already choosing between heating and consumption. The cap is expected to rise to more than £3,000 in October after the next review. Real wages in the UK fell by 3% in the second quarter of 2022, according to ONS data published on Tuesday, the biggest fall on record. Despite average pay excluding bonuses rising by 4.7%, the cost of living is far outpacing wage growth and squeezing household incomes. “Today’s inflation figures serve as a further reminder to many UK households that they are facing a period of significant financial distress,” said Dan Howe, head of investment trust at Janus Henderson. “Consumers are already struggling with rising energy costs and rising household prices, all of which are exacerbated by a lack of decisive action at the political level. Amid talk of strikes and blackouts, there is no doubt that tough decisions lie ahead for the families of United Kingdom.” Richard Carter, head of fixed rate research at Quilter Cheviot, predicted the Bank of England would likely respond at the next monetary policy meeting with another 50 basis point rate hike in a bid to fight inflation, and said there was no doubt that the cost of living crisis will get worse before it gets better. “Therefore, there will undoubtedly be a lot of pressure on the next prime minister to help soften the blow and the Bank of England will continue to have a very difficult job on its hands,” he added.
