Soaring food prices pushed annual consumer inflation in the UK to a 40-year record of 9.1% last month, the highest rate for the Group of Seven and underscoring the severity of the country’s cost-of-living crisis. .
The reading rose from 9.0% in April and was in line with a Reuters poll of economists. Records from the Bureau of National Statistics show that May’s inflation was the highest since March 1982 – and is likely to get worse.
The pound, one of the weakest currencies against the dollar this year, dipped below $1.22, down 0.6% on the day before rebounding later.
Some investors consider the UK to be at risk of both persistently high inflation and recession, reflecting its large imported energy bill and ongoing Brexit-related frictions that could further strain trade ties with the European Union.
“With the economic outlook so unclear, no one knows how far inflation can go and how long it will continue – making fiscal and monetary policy judgments particularly harsh,” said Jack Leslie, senior economist at the Resolution Foundation.
On Wednesday, the Resolution Foundation said the cost of living impact for families is being compounded by Brexit, with damaging long-term implications for productivity and wages.
Average wages are not keeping up with inflation and unions have been warning of widespread strikes in the coming months.
The inflation rate in the UK in May was higher than in the US, France, Germany and Italy. Japan and Canada have yet to report data for May, but neither is expected to come close.
The Bank of England said last week that inflation is likely to remain above 9% for the next few months until it peaks slightly above 11% in October, when energy bills are expected to rise again.
Financial markets show that UK rates are expected to rise above 3% by the end of the year, from 1.25% today, although most economists believe weak economic growth will prompt the central bank to raise rates less. than that.
Food and non-alcoholic beverage prices rose 8.7% year-on-year in May – the biggest jump since March 2009 and making this category the main driver of annual inflation last month.
Annual core inflation – which eliminates food and energy prices to give an idea of domestically generated cost pressure – fell for the first time since September to 5.9% from 6.2%, a lower-than-expected reading.
“The Bank of England can actually get some hope from the fact that core price pressures are easing (but) we doubt that … will be enough to prevent further rate hikes in the coming months,” said Sandra Horsfield, economist. from Investec.