U.K. inflation has risen to a new 40-year high in June, rising from 9.1% in May to 9.4% in June, driven by the increasing food and energy prices which continues to impact the cost of living.
The difference represents a 0.8% monthly incline in consumer prices, more than the previous month’s 0.7% rise though it remains short of the 2.5% monthly increase in April.
According to the U.K.’s Office for National Statistics (ONS) the indicative modeled consumer price inflation estimates suggest that the CPI rate would last have been higher around 1982, where estimates range from nearly 11% in January down to approximately 6.5% in December.
It noted that the most significant contributors to the rising inflation rate came from motor fuels and food as the fuels soared 42.3% on the year, the highest rate before the start of the constructed historical series in 1989.
While the Bank of England has implemented five consecutive 25 basis point hikes to interest rates, Andrew Bailey, Governor, Bank of England in a speech recently suggested a 50 basis point hike at its August policy meeting.
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Bailey believes that this would spur the bank’s commitment to return inflation to its 2% target as it translates to the U.K.’s biggest single increase in interest rates for nearly 30 years.
He said, “Monetary policy has to be set taking into account the scale of this shock to real income, while keeping our focus on inflation and inflation expectations. Returning inflation to its 2% target sustainably remains our absolute priority. But we recognise a trade-off in a situation of high inflation and weakening growth.
“In my view this trade-off explains why we have raised the Bank Rate progressively since last December in increments of 0.25% after the first rise. We have judged what we need to do in the face of these very big external shocks which, assuming Bank Rate following the market path used for the May MPR forecast, will see inflation fall very rapidly next year, and return to target in 2023, and then go below target.
“In simple terms this means that a 50 basis point increase will be among the choices on the table when we next meet. 50 basis points is not locked in, and anyone who predicts that is doing so based on their own view. We do not pre-announce Bank Rate decisions for the very simple reason that MPC decisions are based on deliberation at the time among nine people focused on returning inflation to the 2% target sustainably.”