# UK inflation hits 40-year record, highest in G7
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-06-22
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: British Inflation Hits 40-Year High of 9.1%
Meta Description: Britons facing record-high food prices as inflation skyrockets to 9.1%. As inflation rises, concerns grow over economic impact and future financial stability.
URL: https://financedigest.com/uk-inflation-hits-40-year-record-highest-in-g7html

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LONDON (Reuters) – Soaring food prices pushed British consumer price inflation to a 40-year high of 9.1% last month, the highest rate out of the Group of Seven countries and one which underlines the severity of the country’s cost-of-living crunch.

The reading was up from 9.0% in April and matched the consensus of a Reuters poll of economists. Records from the Office for National Statistics show May’s inflation was the highest since March 1982 – and worse is likely to come.

Sterling, one of the weakest currencies against the U.S. [dollar this year](https://www.financedigest.com/dollar-creeps-up-in-subdued-start-to-new-year.html "Dollar creeps up in subdued start to new year"), fell below $1.22, down 0.6% on the day, before later recovering.

Some investors judge Britain to be at risk of both persistently high inflation and recession, reflecting its large imported [energy bill](https://www.financedigest.com/energy-bill-support-pushes-uk-budget-deficit-to-february-record.html "Energy bill support pushes UK budget deficit to February record") and ongoing Brexit-related friction which could further hurt trade ties with the European Union.

With the [economic outlook](https://www.financedigest.com/analysis-russians-feel-little-economic-pain-now-long-term-outlook-darkens.html "Analysis: Russians feel little economic pain now, long-term outlook darkens") so unclear, no one knows how high inflation could go, and how long it will continue for – making fiscal and monetary policy judgements particularly tough,” said Jack Leslie, senior economist at the Resolution Foundation think tank.

Earlier on Wednesday the Resolution Foundation said the cost-of-living [hit for households was being compounded by Brexit](https://www.financedigest.com/the-brexit-effect-hits-uk-salaries-but-possibly-boosts-tourism.html "The Brexit Effect Hits UK Salaries, but Possibly Boosts Tourism"), with damaging long-term implications for productivity and wages.

Average pay is not keeping up with inflation and trade [unions have warned of widespread strikes](https://www.financedigest.com/ita-airways-averts-strike-after-wage-increase-accord-with-unions.html "ITA Airways averts strike after wage increase accord with unions") in the coming months. Railway staff have already staged mass walkouts this week.

Britain’s [headline inflation](https://www.financedigest.com/boes-mann-falling-headline-inflation-high-core-make-policy-difficult.html "BoE’s Mann: Falling headline inflation, high core, make policy difficult") rate in May was higher than in the United States, France, Germany and Italy. While [Japan and Canada](https://www.financedigest.com/brazil-to-resume-visa-requirements-for-us-japan-australia-canada-sources.html "Brazil to resume visa requirements for US, Japan, Australia, Canada -sources") have yet to report consumer price data for May, neither are likely to come close.

The Bank of England said last week that inflation was likely to remain above 9% over the coming months before peaking at slightly above 11% in October, when regulated [household energy bills](https://www.financedigest.com/44-of-uk-households-are-worried-theyll-have-to-foot-the-bill-for-net-zero.html "44% of UK Households are Worried They’ll Have to Foot the Bill for Net Zero") are due to rise again.

Financial markets show interest rates in [Britain are on course to rise above 3% around the turn of the year](https://www.financedigest.com/2043-the-year-britain-will-turn-cashless.html "2043: The year Britain will turn cashless") from 1.25% now, although most economists think waning economic growth means the BoE will raise rates by less than that.

[Finance minister Rishi Sunak said after the data that the British government was doing all it could to combat a surge in prices and the central bank would act “forcefully” to contain inflation](https://www.financedigest.com/how-finance-leaders-can-turn-the-inflation-challenge-into-opportunity.html "How finance leaders can turn the inflation challenge into opportunity").

CORE ISSUE

Prices for food and non-alcoholic drinks rose by 8.7% in annual terms in May – the biggest [jump since March 2009 and making this category the biggest driver of annual inflation](https://www.financedigest.com/oil-jumps-on-lower-than-expected-us-inflation-data.html "Oil jumps on lower-than-expected US inflation data") last month.

Annual [core inflation – which strips out food and energy prices](https://www.financedigest.com/euro-zone-inflation-eases-in-feb-but-core-prices-pick-up.html "Euro zone inflation eases in Feb but core prices pick up") to give an idea of domestically generated cost pressure – fell for the first time since September to 5.9% from 6.2%, a lower-than-expected reading.

The Bank of England may indeed [gain some hope](https://www.financedigest.com/stocks-dollar-gain-on-soft-landing-hopes.html "Stocks, dollar gain on soft landing hopes") from the fact that core price pressures are subsiding (but) we doubt this … will be enough to avert further [rate rises](https://www.financedigest.com/russian-retail-sales-fall-deeper-jobless-rate-rises-in-sept-data.html "Russian retail sales fall deeper, jobless rate rises in Sept – data") in the coming months,” said Sandra Horsfield, an economist from Investec.

Overall [consumer prices](https://www.financedigest.com/ikea-reports-record-sales-as-price-hikes-offset-weakening-consumer-confidence.html "IKEA reports record sales as price hikes offset weakening consumer confidence") rose by 0.7% in monthly terms in May, the ONS said, a little more than the 0.6% consensus.

Costs paid by British factories for materials and energy – a key determinant of [prices later paid by consumers in shops](https://www.financedigest.com/uk-shop-price-inflation-hits-record-8-in-january-brc.html "UK shop price inflation hits record 8% in January: BRC") – were 22.1% higher in May than a year earlier, the biggest increase since these records began in 1985, the ONS said.

(Reporting by Andy Bruce and David Milliken; Writing by William James; Editing by Kate Holton, Angus MacSwan and Hugh Lawson)


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