The cost of living problem in the United Kingdom (UK) worsened in June as a result of inflation reaching a fresh 40-year high for the month, which heaped pressure on the Bank of England (BOE) to deliver an aggressive interest-rate hike the following month.
According to data released by the Office for National Statistics on Wednesday, consumer prices increased by 9.4 percent when compared to the same period the previous year. This is the largest annual increase seen since February 1982, (July 20). The spike in the price of motor gasoline during the month of June, which was 9.3 percent higher than the previous month’s average, was the primary factor for the acceleration from 9.1 percent in May.
Wages are growing at a far slower rate than prices currently are. Inflation is expected to hit 11 percent in October, which is when another increase in the cost of electricity will take effect, which will make things even more difficult for people. On Tuesday, unions that represent public-sector employees threatened more strikes in response to an offer from the government to boost compensation that, when adjusted for inflation, would result in a considerable decrease.
In the meanwhile, policymakers at the BOE are concerned that persistently high inflation may become ingrained in the economy if growing wage and raw-material costs drive businesses to maintain their pricing increases.
As the Bank of England Governor, Andrew Bailey, gave his annual speech at the Mansion House in London last night, he raised the possibility that there will be a half-point increase in interest rates in August. This comes as the central bank steps up its efforts to bring inflation back to the 2% target level. In the event that it is carried out, it will be the first rise of a half point since the BOE got its independence in 1997.
Since December, policymakers have implemented five separate rate hikes, bringing the benchmark rate up to 1.25 percent, and money markets are pricing in a rate of 3 percent by the end of the year.