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UK sees highest inflation since 1992, pressuring BoE and households

Economic IndicatorsJan 19, 2022 17:20
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2/2 © Reuters. FILE PHOTO: People carrying bags walk down the stairs outside the Westfield Stratford City shopping centre, amid the coronavirus disease (COVID-19) outbreak in London, Britain, December 5, 2020. REUTERS/Henry Nicholls 2/2

By David Milliken and Andy Bruce

LONDON (Reuters) -Inflation in Britain rose faster than expected to its highest in nearly 30 years in December, intensifying a squeeze on living standards and putting pressure on the Bank of England to raise interest rates again.

The annual rate of consumer price inflation increased to 5.4% from November's 5.1%, the highest since March 1992, the Office for National Statistics said. Economists polled by Reuters had expected a rise to 5.2%.

Financial markets now price in a more than 90% chance that the BoE will raise its main interest rate to 0.5% on Feb. 3. Last month it became the world's first major central bank to tighten policy since the start of the COVID-19 pandemic.

"The Bank of England was already feeling uncomfortable about its monetary policy stance. Today's upside surprises to both the headline and core inflation readings will certainly not have helped," said Ambrose Crofton, global market strategist at J.P. Morgan Asset Management.

Two-year British government bond yields, which are sensitive to financial markets' interest rate expectations, came within a whisker of their highest level since 2011.

Inflation has risen sharply across most advanced economies, reflecting a global rise in energy prices and supply chain difficulties.

But the BoE appears more concerned than the U.S. Federal Reserve or the European Central Bank that labour shortages and wage pressures will cause inflation to be slow to fall back once immediate price pressures have passed.

Speaking to lawmakers on Wednesday, Governor Andrew Bailey said financial markets expected energy prices would take longer to fall than had been the case two months ago, while BoE staff had found tentative signs inflation was pushing up pay settlements.

"Please don't think we don't think these are serious pressures. They are," Bailey said, when challenged over whether the central bank had been complacent about price risks.

A surge in cases of the Omicron coronavirus variant had negligible impact on inflation, ONS statisticians said.

Instead, prices for food, hospitality and household goods were the main factors pushing up inflation in December while fuel prices - the main driver in previous months - remained at recent highs.

"Not only does this provide additional evidence that inflation is becoming endemic rather than transitory, it also bodes ill for households facing multiple rises in the cost of living this spring," said Kitty Ussher, chief economist at the Institute of Directors.

APRIL PEAK?

British inflation is widely expected to peak in April when regulated household energy bills look set to increase by around 50%. Last month the BoE forecast a peak of around 6%, but now some economists see 7% as more likely.

Inflation was just 0.6% in December 2020, and the BoE repeatedly had to revise up its forecast last year. A new inflation forecast is due on Feb. 3. The last one in November showed inflation staying above its 2% target until mid-2024.

Rising inflation is also turning into a political problem for Prime Minister Boris Johnson's government, which faces calls from the opposition and charities to offset the rise in energy bills, which comes at the same time as a tax increase on wages to fund higher health and social care spending.

"I understand the pressures people are facing with the cost of living, and we will continue to listen to people's concerns," finance minister Rishi Sunak said after the inflation data.

Wednesday's figures showed that core CPI - which excludes more volatile food, energy, alcohol and tobacco prices - rose to a record 4.2% from November's 3.9%.

Retail price inflation - an older measure that the ONS says is no longer accurate, but which is still widely used by government and businesses - rose to a 30-year high of 7.5% from 7.1%.

Factory price inflation showed tentative signs that cost pressures may have peaked, cooling to 9.3% from 9.4% in November. Inflation for costs paid by producers for material and energy also decreased, to 13.5% from 15.2%.

UK sees highest inflation since 1992, pressuring BoE and households
 

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Comments (7)
Martin Wall
Martin Wall Jan 20, 2022 11:27
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Rates need to be at least 3%. 0.75% will do nothing
Mareks Boriss
Mareks Boriss Jan 19, 2022 23:35
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The people suffer again and again, but fat cats get richer. One of them less...
ian Chamberlain
ian Chamberlain Jan 19, 2022 13:32
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globally prices are higher on almost everything. Energy and natural resources (minerals, wood etc) have been rising rapidly, so this is a global thing and has nothing to do with Brexit, morelikely investors investing in something tangible pushing up prices, as well as the global demand for everything.shipping is more than double it was 18 months ago, meaning all the low cost items we buy from China are significantly higher in price.government have massively increased their debt levels to hand out money to people who could not work due to covid, so are quite happy for inflation to increase to make their debt in real terms reduce.The UK economy is booming, growing faster than Europe, so this has absolutely nothing to do with Brexit. Amazing how everyone said when Britain leaves Europe its economy would collapse and the £ would be worthless. neither have happened, infact the opposite has happened. the £ is up against both Euro and Dollar since Brexit, unemployment is at all time lows.
Peter Tatlow
Peter Tatlow Jan 19, 2022 10:28
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laughable that even the lefty press ,the champagne socialists,the only people who benefit from socialist ideas, was campaigning against pensioners getting an 8 increase and they end with a 3 per cent increase on the worst state pension in Europe. A real fall of 2 or 3 per cent taking inflation into account.
Harry Baker
Harry Baker Jan 19, 2022 8:21
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This is because of money printing by the Bank of England. They should never have given "furlough" payments to companies and people if they didn't have the money.
pete hon
pete hon Jan 19, 2022 7:42
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who cares about the prices of furniture anyways. how many times did you buy furniture last month ? The same with car prices. If it is too expensive , then take the train or buy the car next year or a used car or a cheap one.
pete hon
pete hon Jan 19, 2022 7:42
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and those price increases stem from not bring part of the union anymore . Everything is getting more expensive and the flood of immigrants you receive on top of that.
Puk Pups
Puk Pups Jan 19, 2022 7:42
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How many times you eating? How many times you use electricity and gas ? They are 12% and 50% rising
Martin Wall
Martin Wall Jan 19, 2022 7:42
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Lefties and remainers never have any clue about economics and boy you show that.
Jonathan So
Jonathan So Jan 19, 2022 7:34
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Good, this should guarentee an interest rate increase.
 
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