UK inflation climbs to highest since 1992 at 5.5%

British consumer prices rose at the fastest annual rate in nearly 30 years last month, intensifying pressure on households and bolstering the odds that the Bank of England will hike interest rates for a third straight meeting .

The annual rate of consumer price inflation rose to 5.5% in January, the highest since March 1992, when Britain emerged from a long period of high wage agreements fueling inflation. That was above most economists’ forecasts in a Reuters poll for it to hold at December’s 5.4% rate.

Earlier this month, the Bank of England predicted inflation would peak at around 7.25% in April, when household energy bills are expected to more than halve.

“This morning’s upside surprise in UK inflation serves to underscore a recent global trend: higher and more persistent inflation caught central banks off guard and opened the door to more rate hikes. of interest this year,” said Ambrose Crofton, global strategist at JP. Morgan Asset Management.

Consumer price inflation in the United States hit a 40-year high of 7.5% in January, while inflation in the eurozone hit a record high of 5.1%.

The BoE has already hiked rates twice since December – to 0.5% from 0.1% – and financial markets expect another hike to 0.75% or 1% on March 17 after its next meeting.

Yields on two-year UK government bonds rose to their highest level since 2011 shortly after the inflation data was released.

Financial markets expect BoE interest rates to hit 2% by the end of 2022, although most economists say they won’t come close to that level.

“There will likely be another hike next in May, taking interest rates to 1.0%, but we think that’s where the (BoE) committee will stop as the inflation outlook becomes more favorable,” said Thomas Pugh, an economist at RSM UK.

Britain’s central bank has said it does not expect inflation to return to its 2% target until early 2024. The majority of economists believe inflation will fall faster.

Markets expect a sharp decline in energy prices next year, and some signs of easing pressures on the global supply chain.

But working-age households are facing their biggest annual squeeze on disposable income in 30 years, not least because Prime Minister Boris Johnson’s government plans to raise payroll taxes for workers and businesses in April.

The opposition Labor Party – as well as some Tory lawmakers – have called on the government to scrap the increase.

more expensive clothes

January’s pick-up in inflation reflected fewer seasonal discounts by retailers than a year earlier, the Office for National Statistics said.

A record 6.3% annual rise in clothing and footwear prices added 0.2 percentage points to the CPI rate, while food and beverage prices rose 4.3%, the most since April 2013.

Gasoline prices were lower than December but are still 23.6% higher than a year ago, while the cost of used cars was 28.7% higher.

Core inflation, which excludes the sometimes volatile prices of energy, food, alcohol and tobacco, rose to 4.4% in January from 4.2% in December, its highest high since these records began in 1997.

Retail price inflation – a longer-term series which the ONS says is no longer accurate, but is used in commercial contracts and to fix interest payments for certain government bonds – was the highest since March 1991 at 7.8% in January.

There were signs of further inflationary pressures ahead as manufacturers raised prices by 9.9%, the biggest annual jump since September 2008 and above a Reuters poll forecast.

But the surge in manufacturers’ raw material costs slowed slightly, rising 13.6% from 13.8% in December and a peak of more than 15% in November.

(Source: Reuters)

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