Recently, data released by the British Office for National Statistics showed that the UK consumer price index (CPI) rose by 6.8% year-on-year in July, and the inflation situation in the UK has continued to deteriorate since April last year. What is particularly worrying is that in October last year, the UK CPI even rose by 11.1% year-on-year, a 40-year high. Although it has since declined, the CPI still rose 7.9% year-on-year in June this year. The Bank of England said key indicators such as wage growth showed that persistent inflation may have begun to pose more persistent risks.
To curb inflation, the Bank of England has raised interest rates 14 times in a row since December 2021, raising the benchmark rate to 5.25%. However, with core inflation and services sector inflation remaining high, economists expect the BoE to raise interest rates again next month. This high inflation has led to a rising cost of living, especially food prices, which rose by 19.2% in 45 years in March.
Due to the rising cost of living, many UK families face enormous financial pressure. Leap Change, the UK's largest debt advisory charity, said the number of people seeking help for debt problems increased by about 18% year-on-year in the first five months of this year. Bank of England data showed that the amount of money withdrawn from savings accounts reached its highest monthly level since 1997 in May. This also reflects the current situation of the British people's financial strained in a high inflation environment.
The Guardian quoted data from the Financial Conduct Authority as saying that as of January this year, 12.8 million adults were over-indebted or overdue for more than three consecutive months, and paying daily bills became a heavy burden for them. This phenomenon has continued to intensify over the past few years, demonstrating the economic stress on the British people against the backdrop of inflation.
Experts believe that the UK has fallen into a vicious circle of "wage-price spiral", high prices have increased the pressure on corporate employees' wages, while high labor costs and high borrowing costs have limited the expansion of economic activities. The UK's economic markets are also affected by high labour costs, high borrowing costs and economic uncertainty, limiting economic activity.
As the Bank of England continues to raise interest rates, the cost-of-living crisis could expand into a borrowing cost crisis, further exacerbating financial stability risks. International rating agency Moody's analysis believes that high inflation and high borrowing costs will likely push the British economy into a mild recession. The UK is facing a reduced labour force and economic shocks under the impact of the coronavirus pandemic and Brexit, and future economic challenges and risks will need to be more closely monitored and adjusted.