Liz Truss and Rushi Sunak at The Sun’s Showdown: The Fight for No10, the last live debate for Conservative Party leaders. The next prime minister will face a historic cost of living crisis as food and energy prices rise and real incomes shrink.
Dominic Lipinski | Dad Pictures | Getty Images
LONDON — UK inflation rose to another 40-year high in July, as rising food and energy prices continued to amplify historic pressures on households.
The consumer price index rose by 10.1% per year, according to estimates released Wednesday by the Office for National Statistics, above a Reuters consensus forecast of 9.8% and up 9.4% in June.
Core inflation, excluding energy, food, alcohol and tobacco, stood at 6.2% in the year to July 2022, up from 5.8% in June and ahead of the 5.9% projections.
UK 2-year Gilt yields rose after red hot inflationary pressures, rising more than 17 basis points to reach 2.327%, their highest since late June.
Rising food prices were the largest upward contributor to year-on-year inflation between June and July, the ONS said in its report.
“Supermarkets had little choice but to pass on price increases to suppliers as they themselves face unprecedented inflation in input costs for raw materials and ingredients,” said Kien Tan, director of retail strategy at PwC.
“This was particularly acute in labor and utility-intensive categories such as dairy, with reports that the price of a pint of milk in some stores has more than doubled since the start of the year.”
The ONS reiterated that its indicative modeled estimates of consumer price inflation “suggest that the CPI rate would have been higher around 1982, where estimates range from nearly 11% in January to about 6.5% in December.”
The Bank of England has made six consecutive rate hikes to curb inflation, launching its largest single hike since 1995 earlier this month, while forecasting the UK will enter its fourth-quarter recession since the global financial crisis of the year. .
The Bank expects inflation to reach 13.3% in October. Conservative party leader 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 mounting pressure to offer radical solutions to the country’s historic cost of living.
The latest forecasts suggest that the energy price cap in the UK could rise annually to £4,266 ($5,170) from the current £1,971 early next year, with many households already choosing between heating and food. The cap is expected to rise to over £3,000 in October after the next review.
Real wages in the UK fell 3% annually in the second quarter of 2022, according to ONS data published Tuesday, the sharpest drop ever.
Despite the 4.7% rise in average wages excluding bonuses, the cost of living is much higher than wage growth and household incomes are under pressure.
“Today’s inflation figures serve as a further reminder to many UK households that they are entering a period of significant financial hardship,” said Dan Howe, head of investment trusts at Janus Henderson.
“Consumers are already grappling with rising energy costs and rising household prices, all exacerbated by a lack of decisive action at the political level. Amid talks of strikes and blackouts, there is no doubt that British families are facing tough decisions.”
Richard Carter, head of fixed-income research at Quilter Cheviot, predicted that the Bank of England will likely respond at its next monetary policy meeting with another 50 basis point rate hike in a bid to combat inflation, saying there is no doubt that the crisis in cost of living will get worse before it gets better.
“As such, there will no doubt be a lot of pressure on the next prime minister to soften the blow and the Bank of England will continue to perform a very difficult task,” he added.