UK Inflation Clocks 40-Year High


british union jack flag and Big Ben Clock Tower | Image by Shutterstock

Inflation in the United Kingdom reached a 40-year high of 9.1% in May, according to a Consumer Price Index report published on Wednesday, which gives it the macabre honor of clocking the highest inflation rate in the G-7.

The report identified rising prices for food and non-alcoholic beverages, housing, and fuel, as critical factors in the overall price trajectory.

People in the UK are effectively living through a “cost-of-living crisis.” With household budgets already stretched thin and significant, possibly perpetual disruption to Great Britain’s public transportation network looming on the horizon, economic insecurity is only expected to increase in the short term.

That is not to say that there are no positive signals in the CPI report.

While hitting a 40-year inflation high is a grim marker, the actual increase in the inflation rate was just 0.7% in May. April saw a rise of 2.5%, indicating that inflation may be slowing in the UK, per CNBC.

Publication of the CPI report follows the Bank of England’s (BoE) interest rate hike by 0.25% last Thursday, its fifth increase in as many meetings of the central bank’s Monetary Policy Committee.

The benchmark interest rate in the UK currently stands at 1.25%, but it is likely to increase, especially in light of the notable reduction in the inflation rate since April.

The BoE is pursuing a policy similar to that of the U.S. Federal Reserve, using interest rate hikes to crunch credit and force a cooldown of the economy, theoretically easing inflation. Granted, the Fed has been more aggressive in its hikes, instituting a 0.75% increase this month, 0.25% over its previous two hikes of half a percent.

Both countries risk tipping into recession with this strategy, but interest rate hikes are one of the few tools central banks have to deal with an inflationary crisis.

Economic forecasts are not looking very good in that regard.

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Keepin it real!
Keepin it real!
8 months ago

Oh wait! This couldn’t possibly be true. Inflation is only in the US where Joe Biden is president! (SARCASM)