Business

UK inflation rises to highest level since 1992

Inflation in the UK has accelerated to a 30-year high, strangling living standards and putting pressure on the Bank of England to raise interest rates again.

Consumer prices rose at an annualized rate of 5.5% last month, up from 5.4% in December and far higher than 0.7% in January 2021, data released by the Office National Statistics released on Wednesday.

Inflation in the UK is more than double the Bank of England target of 2% and is the highest since March 1992, when it hit 7.1%.

Core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, rose to 4.4% in January, up from 4.2% in the previous month.

Economists polled by Reuters expect CPI inflation to remain at 5.4% and core inflation to rise to 4.3%.

Line chart of annual % change on consumer price index shows UK Core and Core Inflation are the highest in 30 years

The Bank of England expects inflation to peak around 7% in April, when Ofgem, the energy regulator, will raise the default energy price ceiling.

Elizabeth Martins, economist at HSBC, forecasts an even higher peak but expects inflation to drop to 4.4% by the end of the year.

She argued that even with the fiscal support announced by the government earlier this month, “this higher level of inflation means the income squeeze will be more intense than we had previously expected.” “. She forecasts real household income will fall 2.5% in 2022 and stay flat in 2023.

Along with strong jobs data due out on Tuesday, high inflation supported economists’ expectations that the Bank of England would raise borrowing costs again this year.

Martins expects the bank rate to rise to 1.25% in August, with gains in March, May and August, but this is still below broader market expectations. The central bank raised interest rates in December and February from a historic low of 0.1% to 0.5%.

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