UK inflation hits 40-year high of 9.1% as food and energy prices soar

Consumer prices rose by 0.7 per cent in monthly terms in May. PHOTO: REUTERS

LONDON (REUTERS) -  Soaring food prices pushed British consumer price inflation to a 40-year high of 9.1 per cent last month, the highest rate out of the Group of Seven countries and underlining the severity of the cost-of-living crunch.

The reading released, up from 9 per cent in April, matched the consensus of a Reuters poll of economists. Historical records from the Office for National Statistics (ONS) show May’s inflation was the highest since March 1982 - and worse is likely to come.

The pound, one of the worst performing currencies against the US dollar this year, fell below US$1.22, down 0.6 per cent on the day.

Some investors judge Britain to be at risk of both persistently high inflation and recession, reflecting its large imported energy bill and continuous Brexit troubles, which could further hurt trade ties with the European Union.

“With the economic outlook so unclear, no one knows how high inflation could go, and how long it will continue for - making fiscal and monetary policy judgements particularly tough,” said senior economist Jack Leslie from the Resolution Foundation think-tank.

On Wednesday (June 22), the Resolution Foundation said the cost-of-living hit for households had been compounded by Brexit, which had made Britain a more closed economy, with damaging long-term implications for productivity and wages.

Britain’s headline inflation rate last month was higher than in the United States, France, Germany and Italy. While Japan and Canada have yet to report consumer price data for last month, neither are likely to come close.

The Bank of England said last week that inflation was likely to remain above 9 per cent over the coming months before peaking at slightly above 11 per cent in October, when regulated household energy bills are due to rise again.

Britain's energy regulator raised the household energy price cap by 54 per cent from April 1 to accommodate a surge in wholesale energy prices, including a record rise in gas prices, and has not ruled out further increases to the cap at its periodic reviews this year.

The British government was doing all it could to combat a surge in prices, Finance Minister Rishi Sunak said after the data.

Prices for food and non-alcoholic drinks rose by 8.7 per cent in annual terms last month - the biggest jump since March 2009 and making this category the biggest driver of annual inflation last month.

Overall consumer prices rose by 0.7 per cent in monthly terms last month, the ONS said, a little more than the 0.6 per cent consensus.

British factory-gate prices - a key determinant of prices later paid by consumers in shops - were 22.1 per cent higher last month than a year earlier, the biggest increase since these records began in 1985, the ONS said.

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