The highest rate among the Group of Seven nations and one that highlights the depth of the nation’s cost-of-living crisis, rising food costs last month drove consumer price inflation in Britain to a 40-year high of 9.1%.
The reading increased from 9.0 percent in April and was in line with the majority of economists surveyed by the media. The Office for National Statistics’ records indicate that May’s inflation was the highest since March 1982, and it is probable that it will go worse.
One of the year’s worst performing currencies versus the US dollar, sterling, dropped to below $1.22, losing 0.6 percent on the day, before subsequently rising.
Given its high energy import cost and continued Brexit-related tension, which might further erode trade relations with the European Union, some investors believe that Britain faces a danger of both chronically high inflation and recession.
According to Jack Leslie, senior economist at the Resolution Foundation think tank, “with the economic future so uncertain, no one knows how high inflation may go, and how long it will persist for.” This makes decisions about fiscal and monetary policy extremely difficult.
The Resolution Foundation stated earlier on Wednesday that the cost-of-living damage to households was being exacerbated by Brexit, which would have negative long-term effects on productivity and wages.
Trade unions have warned of extensive strikes in the upcoming months as a result of average salary not keeping up with inflation. This week, huge walkouts by railroad employees have already taken place.
In May, Britain had a higher headline inflation rate than the US, France, Germany, and Italy. Although Japan and Canada have not yet provided statistics on consumer prices for May, neither is probably going to come close.
Prior to reaching a peak of just above 11 percent in October, when regulated home energy rates are scheduled to climb once more, the Bank of England predicted last week that inflation will likely continue above 9 percent during the upcoming months.
Although most analysts believe that the BoE will raise rates by less than that due to slowing economic growth, financial markets indicate that interest rates in Britain are on track to soar beyond 3 percent around the turn of the year from their current level of 1.25 percent.
After the statistics, the British government was doing everything it could to resist an increase in prices, and the central bank will act “forcefully” to curb inflation, according to Finance Minister Rishi Sunak.
Food and non-alcoholic beverage prices increased by 8.7% annually in May, which was the highest increase since March 2009 and made this sector the main contributor to annual inflation in that month.
Lower-than-expected annual core inflation, which excludes food and energy costs to provide a picture of domestically produced cost pressure, dropped to 5.9 percent from 6.2 percent for the first time since September.
According to Sandra Horsfield, an economist at Investec, “the Bank of England may undoubtedly derive some optimism from the fact that core price pressures are receding (but) we doubt this… would be enough to avoid more rate hikes in the coming months.”
The ONS reported that overall consumer prices increased by 0.7 percent in monthly terms in May, slightly more than the 0.6 percent estimate.
The ONS reported that the cost of materials and energy paid by British factories—a major influence in the prices that customers ultimately pay in stores—was 22.1 percent higher in May than it was a year earlier. This is the largest rise since these records began in 1985.