Britain’s inflation woes worsened with the country’s Consumer Price Index (CPI) leaping to a staggering 9.4% reading in June with new warnings it could hit an unheard of 12% in October.
The June reading was above the 9.1% reported for May.
The 9.1% reading for the US CPI took markets by surprise and although the UK is not as vital to global activity and confidence, the huge jump will see a 0.50% rise in the UK key interest rate, and perhaps even more next month.
At the same time, wage data showed a record fall in real pay of 2.8% in the three months to May, an outcome that sets up a miserable autumn and winter for millions of British workers and their families.
European interest rates will rise tonight, Sydney time when the European Central Bank meets and lifts its key rate by at least 0.25%. Media reports Wednesday suggested that the ECB will discuss the prospect of a rise of 0.50% because of rampant inflation.
Bank of England Governor Andrew Bailey suggested on Tuesday that it could consider a 50 basis point hike at its August policy meeting in order to control in inflation. A 9.4% rate would seem to call for a larger than half a per cent rate rise.
The August rate rise will be the 6th from the central bank in this campaign. The previous five have all been a quarter of a per cent.
The surge in UK inflation in June was the highest annual CPI inflation rate in the National Statistic series, which began in January 1997, according to Britain’s Office for National Statistics (ONS).
Month on month the rise was 0.8% topping the May rise of 0.7% but remaining short of the 2.5% monthly surge that shocked markets in April.
Paul Dales, chief UK economist at Capital Economics said in a note on the data there was sign global price pressures were being replaced by higher domestically generated inflation.
“We still think inflation will rise to 12% in October and that interest rates will be raised from 1.25% to 3%, although it’s finely balanced whether they rise by 25bps or 50bps in August,” Dales said.
The most significant contributors to the surge in the inflation rate came from motor fuels and food (especially eggs and milk, everyday staples), the ONS said, with the former soaring 42.3% on the year, the highest rate since before the start of the constructed historical series in 1989.
The Bank of England expects inflation to peak at around 11% later in the year, (The Reserve Bank sees the Australian CPI peaking around or just above 7% by the end of this year). Other economists reckon the CPI could get to 12% by October
But, like Australia, the surge in inflation is damaging UK wages and putting millions of people even further behind the rapidly accelerating cost of living.
New ONS figures Tuesday showed that real wages in the UK over the three months to May experienced their steepest decline since records began in 2001, as pay increases fell short of the inflation rate.
UK unemployment held steady at 3.8%, UK earnings growth increased across the private and public sector by 4.3% in the three months to May excluding bonuses.
But the ONS data left pay down by 2.8% year on year – a record fall.
