UK inflation has hit a 30-year high, putting pressure on the Bank of England and households

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CPI rose to 5.4% in December, the highest since March 1992, saw the Bank of England raise interest rates next month, some indications of easing price pressures on manufacturers

LONDON (Reuters) – British inflation rose faster than expected to a 30-year high in December, adding to pressure on living standards and putting pressure on the Bank of England to raise interest rates again.

The annual rate of consumer price inflation rose to 5.4% from 5.1% in November, the highest rate since March 1992, the Office for National Statistics said. Economists polled by Reuters had expected a 5.2% increase.

Financial markets are now anticipating a more than 90% chance that the Bank of England will raise its key interest rate to 0.5% on February 3rd. Last month, it became the world’s first major central bank to tighten policy since the start of the COVID-19 pandemic.

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“The Bank of England was already feeling uneasy about its monetary policy stance. Today’s bullish surprises on headline and core inflation readings certainly won’t help,” said Ambrose Crofton, global market analyst at JP Morgan Asset Management.

Britain’s two-year government bond yields, which are influenced by interest rate expectations in financial markets, came within the range of their highest levels since 2011.

Inflation has risen sharply in most advanced economies, reflecting a global rise in energy prices and supply chain difficulties.

But the BoE appears to be more concerned than the US Federal Reserve or the European Central Bank that labor shortages and wage pressures will slow inflation down once spot price pressures pass.

Statisticians at the Office for National Statistics said that the large increase in cases of the Omicron variant coronavirus had little impact on inflation.

Instead, food, hospitality and household goods prices were the main drivers driving up inflation in December, while fuel prices – a major driver in previous months – remained at their recent highs.

People shop at a supermarket in London, Britain, December 24, 2021. REUTERS/Kevin Combs/File Photo

“Not only does this provide additional evidence that inflation is becoming endemic rather than temporary, but it is ominous for families facing multiple cost-of-living hikes this spring,” said Kitty Usher, chief economist at the Institute of Directors.

April peak?

UK inflation is widely expected to peak in April when it looks like regulated home energy bills will rise by around 50%. Last month, the Bank of England forecast a peak of around 6%, but now some economists see 7% as more likely.

BoE Governor Andrew Bailey is due to speak to a parliamentary committee at 1415 GMT, and the Bank will publish new inflation forecasts on February 3. The latest set in November showed inflation staying above its 2% target through mid-2024.

Rising inflation is also turning into a political problem for Prime Minister Boris Johnson’s government, which faces calls from the opposition and charities to offset the rise in energy bills, which come at the same time as higher wage taxes to fund higher health and social services. Spending on care.

“I understand the pressures people are facing regarding the cost of living and we will continue to listen to people’s concerns,” Finance Minister Rishi Sunak said after the inflation data.

Wednesday’s figures showed that core CPI – which excludes the more volatile prices of food, energy, alcohol and tobacco – rose to a record high of 4.2% from 3.9% in November.

Retail price inflation – an old measure that the Office for National Statistics says is no longer accurate, but still widely used by government and businesses – rose to a 30-year high of 7.5% from 7.1%.

Factory price inflation showed initial signs that cost pressures may have peaked, falling to 9.3% from 9.4% in November. The rate of inflation in the costs paid by producers of materials and energy also decreased to 13.5% from 15.2%.

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(Reporting by David Milliken, Editing by Andy Bruce, Kevin Levy and John Stonestreet)

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