Economy  

Inflation jumps to record-breaking 10.1%

Inflation jumps to record-breaking 10.1%
 

The UK saw prices rise by the steepest gradient in 40 years last month, as concerns grow about the worsening cost of living crisis.

The consumer prices index leaped 10.1 per cent in the 12 months to July this year, according to the Office for National Statistics, confounding analysts’ expectations.

The figure was driven mainly by the increasing cost of food, as well as non-alcoholic drinks and transport.

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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 12.3 per cent.

Chancellor of the exchequer Nadhim Zahawi said: “I understand that times are tough, and people are worried about increases in prices that countries around the world are facing. 

“Getting inflation under control is my top priority, and we are taking action through strong, independent monetary policy, responsible tax and spending decisions, and reforms to boost productivity and growth.”

Household finances are due to come under sustained pressure over the next six months as energy bills are set to rise 80 per cent in October, to a peak of £4,427 in April next year, according to energy consultancy Cornwall Insight. 

The energy price cap, the maximum suppliers can charge per unit of energy, is currently £1.971.

Mike Bell, global market strategist at JP Morgan Asset Management, said in order to avoid a “large hit” to consumers, significant further fiscal stimulus is required, beyond what is currently being proposed by Conservative leadership candidates Liz Truss and Rishi Sunak.

“However, if enough stimulus is provided to largely offset the hit to consumers, then the Bank of England may well feel the need to continue raising interest rates,” he said, adding that this could then pose a risk to consumption and the housing market via higher mortgage costs.

“So unless wage growth and hence underlying inflationary pressures moderate on their own without a rise in unemployment, UK policymakers are stuck between a rock and a hard place.”

David Robinson, chartered wealth manager at London-based Wildcat Law, said savers need to beware of the false safety of cash deposits.

“If you have cash savings and debt then you should give serious thought to paying off the debt now,” he said. 

“The days of cheap money from debt are over.”

If investors do not need access to their cash anytime soon, they should consider investing, he said.

“Markets may be set for difficult times, but a well balanced portfolio will be the best way to ride out the coming storm.

“History shows that equity markets do recover well and offer the best form of protection longer term against inflation.”

sally.hickey@ft.com