Economy  

Inflation rises to fresh 40-year high of 9.4%

Inflation rises to fresh 40-year high of 9.4%
(NEIL HALL/EPA-EFE/Shutterstock)

The rate of inflation has risen to 9.4 per cent in the 12 months to June, as the governor of the Bank of England warned interest rates could be hiked by 0.5 per cent in the next decision meeting.

The consumer prices index rose 3 percentage points higher than the figure in May, according to the Office for National Statistics.

The retail price index, which measures the changes in retail prices of a basket of goods and services, as opposed to the weighted average prices tracked by the CPI, rose to 11.8 per cent, up from 11.7 per cent in May. 

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The largest contributing forces to the rise were fuel and food costs, with average petrol prices now at 184p per litre, compared with 130p per litre a year ago, according to the ONS.

The price of food and non-alcoholic drinks has risen 9.8 per cent in the year to June, the highest rate since March 2009, and including a 1.2 per cent rise between May and June this year.

Chancellor of the exchequer, Nadhim Zahawi, said: “Countries around the world are battling higher prices and I know how difficult that is for people right here in the UK, so we are working alongside the Bank of England to bear down on inflation."

Technical director at Canada Life, Andrew Tully, said the figures are a “further hammer blow” to households across the UK, who will be left reeling from the continuing surge in prices for everyday items. 

With wages officially lagging way behind the cost of living, he said, how long inflation remains high will determine our living standards for years to come. 

“This is the issue the BoE will grapple with as it signals bigger interest rate hikes are on the horizon as it navigates the choppy waters that lay ahead.”

The inflation rise comes a day after central bank governor Andrew Bailey said a 50 basis point increase in interest rates was “on the table”.

In a speech at the Mansion House dinner on July 20, Bailey said the balance of risks to inflation is “on the upside”.

“In simple terms this means that a 50 basis point increase will be among the choices on the table when we next meet.”

The rate now sits at 1.25 per cent, having been raised for a fifth time in a row last month, with three members dissenting and calling for a rise of 0.5 per cent. 

Richard Carter, head of fixed interest research at Quilter Cheviot said the BoE will be “feeling the heat” and has a difficult job on its hands to quell inflation as the financial pressure on consumers gets more intense over the coming months.

“Recession fears are growing by the day and if more extreme interest rate rises are required, this could easily tip the economy into contraction,” he said. 

“The BoE has to balance that with the need to get inflation down and given its persistence it may feel it has no choice but to act strongly now.”