UK inflation hits decades high in cost of living squeeze

British annual inflation accelerated to a near 30-year high in December, official data showed Wednesday, stoking fears over a cost of living squeeze as wages fail to keep pace.

Economies worldwide are battling decades-high inflation that is forcing central banks to lift interest rates, including the Bank of England which last month raised its key borrowing cost for the first time in more than three years.

The UK’s inflation rate hit 5.4 percent last month, rising further above target on price gains for clothing, domestic energy, food and furniture, the Office for National Statistics said in a statement.

The BoE, whose chief task is to keep inflation close to a 2.0-percent target, is now expected to hike again at its next meeting in February amid easing concerns over Omicron.

– ‘Cost of living squeeze’ –
Britain’s cost of living is forecast to soar even higher in April due to looming hikes in national insurance tax and domestic energy, analysts say.

“With consumer prices rising at their fastest rate for three decades and wage growth slowing, Britons are being squeezed ever harder by the cost of living,” said Jay Mawji, managing director of global liquidity provider IX Prime.

Inflation had already forged a decade-high of 5.1 percent in November.

The rate had hit 7.1 percent in March 1992.

“The inflation rate rose again at the end of the year and has not been higher for almost 30 years,” said ONS chief economist Grant Fitzner.

“Food prices again grew strongly while increases in furniture and clothing also pushed up annual inflation.

“These large rises were slightly offset by petrol prices, which despite being at record levels were stable this month, but rose this time last year.”

Fitzner added that last year’s Covid lockdowns had impacted some items but the overall impact on headline inflation rate was “negligible”.

Consumers and businesses are struggling with surging costs, hit also by ongoing pandemic turmoil and supply chain problems.

At the same time, salaries are failing to keep pace.

Real wages in November fell on the year for the first time since mid-2020 following a spike to inflation, official data showed Tuesday.

Britons in April face the prospect of an increase in national insurance taxation — paid by workers and employers — as well as widely-forecast bumper increases in electricity and gas costs.

“More pain lies ahead in the form of tax rises in April and a likely 50-percent jump in energy bills,” added Mawji.

“The Bank of England’s medicine for taming inflation will be bitter – more interest rate rises, more quickly. The only question is when it next hikes rates.”

The BoE has in December raised its key borrowing cost to 0.25 percent from a record-low level of 0.1 percent, as it attempted to dampen inflationary pressures.

Frederick & Oliver equity trader Marc Kimsey said another rate hike in February would now be “inevitable”.

In reaction to Wednesday’s data, finance minister Rishi Sunak insisted the Conservative government understood the cost of living squeeze.

However, the main opposition Labour Party argued that families would be rocked by “substantial” tax rises and “huge” increases in energy bills.

Britain’s economy meanwhile surpassed its pre-pandemic level after recording strong growth in November, recent data showed.