UK inflation hits 40-year high of 9% as cost of energy rises by half
▶ Official figures lay bare impact on British consumers and businesses
The UK’s rate of inflation increased at its fastest rate on record last month in a clear demonstration of the cost-ofliving crisis, according to the latest official figures.
Consumer Prices Index inflation increased to 9 per cent in April from 7 per cent in March, the Office for National Statistics said.
It was the fastest measured rate rise since official records began in 1989, and the ONS estimates it was the highest level in 40 years.
A large part of the rise was a result of the price cap on energy bills, which was increased by 54 per cent for the average household at the start of April.
The Bank of England predicted that inflation will rise above 10 per cent this year, and this month it raised interest rates from 0.75 per cent to 1 per cent – a 13-year high.
Chancellor Rishi Sunak said “we cannot protect people completely” from global problems which contributed to inflation hitting 9 per cent in April, but we “are providing significant support where we can, and stand ready to take further action”.
Last month’s rise was driven by an unprecedented surge in energy bills. Regulator Ofgem decides the maximum that an energy supplier can charge its customers, but the amount is changed every six months.
Grant Fitzner, chief economist at the ONS, said: “Inflation rose steeply in April, driven by the sharp climb in electricity and gas prices as the higher price cap came into effect.
“Around three quarters of the increase in the annual rate this month came from utility bills.
“We have also published new modelled historical estimates today, which show that CPI annual inflation was last higher 40 years ago.
“Steep annual rises in the cost of metals, chemicals and crude oil also continued, along with higher prices for goods leaving factory gates,” Mr Fitzner said.
“This was driven by increases for food products, transport
equipment and metals, machinery and equipment.”
On Tuesday, official figures showed unemployment was at its lowest since 1974. However, soaring inflation led to the biggest annual fall in real earnings excluding bonuses since 2013.
The Confederation of British Industry spoke of a “historic squeeze” in household finances and a “tough trading environment” for businesses.
The business organisation increased pressure on Mr Sunak to bring forward extra help to deal with the rising cost of living.
“Inflation was always likely to hit hard in April given the energy price cap increase,” CBI chief economist Rain Newton-Smith said.
“Looking ahead, inflation is likely to stay high, with a resulting historic squeeze in households’ incomes and a tough trading environment for businesses. It is critical the government explores options to help people facing real hardship now, and support cash flow for vulnerable firms.
“Stimulating business investment
is also crucial, to both plug the near-term gap in growth and to shore up the economy’s potential to withstand future shocks.
“Turning good intentions on a permanent investment deduction into a firm commitment, setting out an infrastructure road map and publishing a digital strategy, are steps which can be taken without delay.”
Naeem Aslam, chief market analyst at Avatrade, said: “Inflation in the UK is completely out of control, and there is no doubt that soaring inflation is having a negative influence on disposable income. Consumers are struggling to meet their daily needs, and now the pressure is even more on the Bank of England to do more to control inflation. But the fact is that the BoE is walking on a fine line, and it can only do so much to control inflation by increasing the interest rate.”
Former BoE governor Mervyn King urged his successors to send a “strong, clear signal now”, suggesting an increase in interest rates is needed.
Before the inflation figures, Mr King told LBC radio: “I think the big challenge is they’ve got to demonstrate that they realise the need now is to give a very strong signal that they’re focusing on bringing inflation down.”
Pressed if he meant a substantial rise in interest rates is needed, he said: “The sooner it’s done, the lower it can be, but my worry would be if you defer this and creep very slowly, you end up in a situation where a year from now people are saying interest rates need to rise.”
On Monday, BoE Governor Andrew Bailey said that ultimately, high global energy and goods prices would hit demand in the UK and therefore increase unemployment.
“The main driver of inflation and what brings it down is the very big, real income shock, which is coming from outside forces and, particularly, energy prices and global goods prices,” Mr Bailey said.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, which forecast from a consensus of analysts that inflation would hit 9.1 per cent, said food inflation may have eased in April compared to the year before.
In April 2021, restaurants were closed, so supermarkets took advantage over Easter as people wanted to celebrate. This year that was not a factor.
“Nonetheless, supermarkets are likely have continued to pass on higher costs to consumers,” Mr Tombs said.
What remains to be seen is how long inflation holds on. Pantheon predicts that it will remain high this year and settle back down below the BoE’s target of 2 per cent in late 2023.
Inflation is likely to stay high, with a squeeze in households’ incomes and a tough environment for businesses
RAIN NEWTON-SMITH
CBI chief economist