London: UK inflation hit a new 40-year high in June, intensifying the cost of living crisis and heaping pressure on the Bank of England to deliver an aggressive interest rate increase next month. Consumer prices rose 9.4 per cent from a year earlier, the biggest increase since February 1982, the Office for National Statistics said Wednesday. The acceleration from 9.1 per cent in May was driven by a 9.3 per cent surge in the price of motor fuel over the month.
Prices are now rising far more quickly than wages. The pain for households is set to get worse, with inflation forecast to top 11 per cent in October when another energy price-hike kicks in. On Tuesday, unions representing public sector workers threatened further strikes after the government offered pay increases that amounted to a significant cut in real terms.
BoE policymakers meanwhile are worried that elevated inflation could become entrenched if rising wage and raw-material costs force companies to keep hiking prices. In his annual Mansion House speech in London last night, BoE Governor Andrew Bailey floated the possibility of a half-point rate increase in August as the central bank steps up its battle to bring inflation back to the 2 per cent target. If delivered, it would mark the first half-point increase since the BOE gained independence in 1997.
Officials have increased the benchmark rate five times since December to 1.25 per cent, and money markets are pricing in 3 per cent by the end of the year.