Consumer prices in the United Kingdom have risen at the fastest pace in almost 30 years as higher costs for energy, transportation, food and furniture squeezed household incomes.
Inflation measured by the consumer price index accelerated to 5.4% in the 12 months through December, the Office for National Statistics said Wednesday. That is the highest rate since March 1992, when inflation stood at 7.1%, and above the 5.1% seen a month earlier.
Economists warned that inflation is likely to rise further in coming months as the full impact of a recent surge in energy prices hits consumers. Gas and electricity bills for millions of households are expected to rise by 50% or more in April when a semi-annual adjustment in the energy price cap takes effect.
The government is under pressure to mitigate the jump in energy prices, with inflation now rising faster than wages. Soaring energy prices, supply chain backups and other issues led the Bank of England to raise interest rates last month for the first time in more than three years, increasing costs for borrowers, despite concern about the economic fallout from a surge in COVID-19 infections driven by the omicron variant.
What is of particular concern is that the change from November has come mainly from an increase in the price of food, said Kitty Ussher, chief economist for the Institute of Directors. 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.
The Bank of England, which tries to keep inflation below 2%, in December raised its benchmark interest rate to 0.25% from a record low 0.1%.
Shafiq Shabir, head of electronic trading at the broker Intertrader, said interest rates may climb to 1% by the end of this year following the eye-watering inflation figures.
Wage growth is expected to sit at 4.5% for 2022, meaning many will see their real-term incomes fall behind the increasingly tight cost of living.