- Inflation rose sharply in the UK in April, reaching a 40-year high of 9% year-on-year.
- It deepens britain's cost-of-living crisis, with energy bills, food and fuel prices all rising.
- It also increases the likelihood that the Bank of England will raise rates again.
- Bank of England Governor Andrew Bailey warned that soaring food prices this year would pose "apocalyptic risks".
Statistics Uk's statistics released data on Wednesday that consumer inflation in the UK soared to a 40-year high of 9%, up from 7 percent in March. The highest level since Margaret Thatcher became Prime Minister.
That increase is more than twice as fast as the base wage, squeezing consumers' purchasing power at the fastest pace on record. Rising energy and food bills have exacerbated the cost-of-living crisis, threatening to plunge the UK into recession later this year.
Much of the price increase came from a sharp spike in utility bills after the government lifted the price cap based on the increase in wholesale energy prices, highlighting the serious negative effects of the war in Ukraine and European sanctions on Russia.
Grint Fitzner, chief economist at the Office for National Statistics, said: "Inflation rose sharply in April as higher price caps came into effect and electricity and gas prices climbed sharply. "About three-quarters of the annual growth rate comes from utility bills," he added.
Data from consultancy charity Citizens Advice shows how UK households are battling inflation.
As of May, it had referred more than 750 people to food banks every day.
So far this year, more than 30,000 people have sought bailouts because they can't afford to pay their energy bills, up 26 percent year-on-year.
Its CHIEF EXECUTIVE, MRS CLAIRE Moriarty, said:
"People wash their clothes in the kitchen sink because they can't afford hot water; parents don't eat to feed their children; and people with disabilities can't afford to use assistive devices because their energy bills are soaring...
The warning light is constantly blinking. Governments must provide more targeted support to help people cope with this growing crisis. ”
Chris Gilles of the Financial Times pointed out that the UK now has the highest inflation rate among G7 countries and the highest among any developed economy in the world.
The Bank of England also forecasts that consumer inflation will rise to 10% later this year – five times its 2% target inflation rate – which could plunge the UK economy into recession in 2023.
Bank of England Governor Andrew Bailey told lawmakers on Monday that the central bank could do nothing in the face of rising inflation, saying 80 percent of it was out of its control. He warned that soaring food prices this year would pose an "apocalyptic risk."
Why is that?
One key reason is supply chain problems and soaring energy costs caused by war.
Archie Norman, chairman of Marks & Spencer, said: "What is happening is that global prices are rising, which has little to do with UK food, but rather freight costs, wheat prices, oil and energy prices affect almost everything. ”
"As a result, all food retailers in the UK – because our margins are very meager – will have to reluctantly let some food prices go up through the system."
Global energy prices soared, in part because of the Russo-Ukrainian war, as supplies were disrupted. This means that not only does it cost more for food manufacturers to produce products, but more expensive gasoline means that it costs more to ship food to stores.
Both Russia and Ukraine are major suppliers of wheat, and about 30% of the world's wheat supply comes from these two countries. To make matters worse, India, the world's second-largest wheat supplier, also banned exports after a heat wave disrupted production and caused domestic prices to soar.
Similarly, Ukraine is the world's main supplier of sunflower oil, and Russia is the second largest supplier. Most of the sunflower oil in the UK comes from Ukraine.
In March alone, food oil prices rose 7.2 percent, compared to more than 18 percent last year.
The cost of nitrogen fertilizer used to grow food in the UK has also more than tripled. Russia is a major supplier of fertilizers.
It all happened when workers saw their wages fall further after soaring inflation.
Regular wages, which exclude bonuses, fell by 2.9 percent in March, the biggest drop since November 2011, according to the Uk's Office for National Statistics (ONS).
The UK government's response to inflation has been attacked
According to the Guardian, inflation is even higher than 9% for the poorest households in the UK as they spend more of their total budget on gas and electricity.
The Institute of Fiscal Studies, a leading economic think tank, calculates that the lowest-income 10 percent of the population faces inflation rates of 10.9 percent. That's 3 percentage points higher than inflation at the richest 10 percent.
"It is clear that the Bank of England must respond strongly and the Chancellor of the Exchequer will weigh what he can do to help distressed consumers."
Heidi Karjalainen, a research economist at IFS, said,
"Inflation reached 9 percent in April. We estimate that the poorest 10% of households face inflation of 10.9%. State welfare grew by only 3.1 percent in April. This means that the living standards of many of the poorest households have fallen sharply.
Earlier this month, the Bank of England raised interest rates to 1 percent from 0.75 percent ( the highest level since 2009 ) to curb inflation. Wednesday's data suggests it may have to raise rates more aggressively than previously thought.
After the data was released, the pound fell to $1.2466 against the dollar and against the euro by 0.1% to 84.50.
Michael Hewson, chief strategist at CMC Markets, said: "Even given The Bank of England's rather clumsy warnings against a large wage raise, the market's current expectation remains that the Bank of England will have to raise interest rates much faster than expected as it grapples with a dilemma: either allow inflation to slow economic growth or raise interest rates faster, to help control the economy faster. ”