Consumer prices surged 9% in the year through April, the fastest rate since March 1982, the Office for National Statistics said Wednesday in a report that marked a bleak moment for living standards.
The leap from 7% in March came from an increase in energy prices, reflecting a surge in wholesale markets that drove a 54% in consumer bills in April. Fuel prices also contributed, reflecting higher oil prices after the war in Ukraine. Both petrol and diesel prices in April rose to a record.
The increase is more than double the pace of basic wage growth, squeezing consumer spending power. The pain is set to intensify, with the Bank of England predicting double-digit inflation by October when energy bills are almost certain to jump again.
The jump in inflation highlights the difficult balancing act facing the UK central bank, which is raising interest rates to rein in inflation at a time when the risk of recession is mounting. With the government raising taxes, it also piles pressure on Sunak to bring forward measures to help more people.
The retail prices index of inflation, which includes housing costs, rose to 11.1%, also the highest since 1982. That will drain the public finances, since about a quarter of £2 trillion of government debt is linked to that measure. The interest bill is expected to double to £80 billion this year — and inflation is exceeding forecasts underpinning that estimate.
When consumer prices were last rising this quickly, Thatcher was still battling to subdue an inflation rate that had peaked at 24.5% under the Labour administration in 1975.
Her Conservative government raised interest rates sharply and introduced deep public spending cuts. It worked in narrow terms. By mid-1983, inflation had fallen to 4.1%. But the cost had been a steep rise in unemployment and a recession, much like one experienced in the U.S. at the same time.
While the headline inflation figure was historic, it marked the first time in months that CPI didn’t surprise on the upside. Economists had expected a reading of 9.1%. Traders pared money market bets on Bank of England rate hikes, and the pound extended losses against the dollar, falling as much as 0.9% to $1.2387.
The BOE delivered a fourth successive increase this month to take the benchmark rate to 1%, and money markets are pricing in 2.5% within a year. But economists on balance expect just two more 25 basis-point rises over the summer before policy is put on pause.
