# UK inflation hits 9.4%, bolstering bets on big BoE rate hike
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-07-20
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: British Inflation Hits 40-Year High Amid Surging Petrol
Meta Description: Discover how surging petrol and food prices have pushed UK inflation to its highest rate in 40 years, with a possible interest rate hike on the horizon.
URL: https://financedigest.com/uk-inflation-hits-9-4-bolstering-bets-on-big-boe-rate-hikehtml

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By Andy Bruce and William Schomberg

LONDON (Reuters) – Surging petrol and food prices last month pushed British inflation to its highest rate in 40 years, according to official figures that bolstered the chances of a rare half percentage-point Bank of England interest rate hike next month.

The Office for National Statistics said annual consumer price inflation rose in June to 9.4%, the highest since February 1982, up from May’s 9.1% and above the 9.3% consensus in a Reuters poll of economists.

The latest increase means Britain had the highest [rate of inflation](https://www.financedigest.com/hotel-investors-should-they-be-worried-about-a-potential-economic-pause-delving-into-inflation-interest-rates-recession-etc.html "‘Hotel Investors – should they be worried about a potential economic pause?’ delving into inflation, interest rates, recession etc") seen in any Group of Seven advanced economy since 1985, although many smaller European Union countries are currently seeing even faster growth in prices.

Wednesday’s data bolstered bets that the BoE will opt for a 50-bps [rate hike](https://www.financedigest.com/wall-street-slips-dollar-gains-as-fed-seen-hiking-rates-in-may.html "Wall Street slips, dollar gains as Fed seen hiking rates in May") next month, which would be the biggest since 1995. The European [Central Bank](https://www.financedigest.com/central-banks-keep-hiking-rates-amid-banking-turmoil.html "Central banks keep hiking rates amid banking turmoil") is considering such a move this week, sources told Reuters on Tuesday.

BoE Governor Andrew Bailey on Tuesday said that scale of borrowing [costs increase was on the table but not “locked](https://www.financedigest.com/dutch-telecom-kpn-locks-in-2023-targets-helped-by-cost-controls.html "Dutch telecom KPN locks in 2023 targets helped by cost controls") in.

The BoE has raised [rates five times since December as it tries to stop the surge in inflation](https://www.financedigest.com/uk-inflation-rate-unexpectedly-rises-to-10-4-in-february.html "UK inflation rate unexpectedly rises to 10.4% in February") from becoming embedded in Britain’s economy, and it is expected to increase them again on Aug. 4.

Soaring inflation [means that momentum for a half-point interest rate](https://www.financedigest.com/interest-rates-are-cut-to-an-all-time-low-what-will-this-mean-for-small-businesses.html "Interest rates are cut to an all-time low. What will this mean for small businesses?") rise in August is growing,” Suren Thiru, economics director of accountancy trade body ICAEW, said.

However, tightening monetary [policy too aggressively increases the risk of recession and will do little to address the global factors driving this inflationary surge.”](https://www.financedigest.com/yen-retreats-after-boj-policy-tweak-sparked-surge.html "Yen retreats after BOJ policy tweak sparked surge")

Investors now see an almost 100% chance of the BoE raising the [Bank Rate](https://www.financedigest.com/instant-view-ecb-sticks-with-big-rate-hike-even-as-bank-fears-roil-markets.html "Instant View: ECB sticks with big rate hike even as bank fears roil markets") to 1.75% from 1.25% next month. It said in June that it was ready to [act “forcefully” if needed](https://www.financedigest.com/insurtech-why-established-players-need-to-act-fast.html "Insurtech: Why Established Players Need to Act Fast").

The ONS said core inflation in June fell to 5.8% from 5.9% in May, in line with the Reuters poll median forecast, which could reassure BoE rate-setters who might be reluctant to [hike rates](https://www.financedigest.com/stocks-falter-as-economic-worries-nag-nz-delivers-big-rate-hike.html "Stocks falter as economic worries nag, NZ delivers big rate hike") more aggressively.

The ONS pointed to a 42% year-on-year [rise in petrol prices and an almost 10% increase in food prices as the main drivers of inflation](https://www.financedigest.com/european-shares-rise-as-us-inflation-data-signals-end-of-rate-hike-cycle.html "European shares rise as US inflation data signals end of rate-hike cycle") last month, a hammer blow for families on low incomes.

The Resolution Foundation think-tank said [inflation for this group had already passed into double digits](https://www.financedigest.com/alphabets-miss-fans-inflation-fears-across-digital-advertising.html "Alphabet’s miss fans inflation fears across digital advertising").

The cost-of-living crunch has triggered a wave of [industrial action by trade](https://www.financedigest.com/eu-recovers-appetite-for-trade-in-green-industry-push.html "EU recovers appetite for trade in green industry push") unions and been hotly debated among the three remaining candidates in the race to replace Boris Johnson as prime minister.

Two are promising immediate tax cuts, something the other contender, former finance minister Rishi Sunak, [says risks fuelling inflation](https://www.financedigest.com/boes-bailey-says-rate-setters-can-put-inflation-before-bank-worries.html "BoE’s Bailey says rate-setters can put inflation before bank worries").

There were signs of further [inflation pressure ahead in Wednesday’s figures](https://www.financedigest.com/french-inflation-revised-upwards-in-february-to-7-3-final-figures.html "French inflation revised upwards in February to 7.3% – final figures").

[Prices paid by 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 24.0% higher in June than a year earlier, the biggest increase since these records began in 1985, the ONS said.

[Prices charged by factories jumped](https://www.financedigest.com/stocks-jump-as-treasury-yields-ease-and-oil-prices-sell-off.html "Stocks jump as Treasury yields ease and oil prices sell off") 16.5%, the most since September 1977.

In response to the data, [finance minister Nadhim Zahawi said Britain was not alone in facing runaway 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") and the government was joining forces with the BoE to tackle the problem.

(Reporting by Andy Bruce; editing by William Schomberg, Andrew Heavens and Nick Macfie)


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