Inflation at its highest for 30 years

Britain’s cost of living crisis worsened in December after inflation jumped to 5.4% – its highest level in almost 30 years – driven by the higher cost of clothes, food and footwear.

Heaping further pressure on Bank of England policymakers to raise interest rates when they meet next month, the price of furniture and eating out also increased as shortages of staff pushed up wage costs and hold-ups at UK ports hiked the cost of imports.

The Bank expects the consumer prices index (CPI) to rise to 6% by April, while some analysts have forecast it could hit 7% unless the government decides to pump billions of pounds into the energy sector to cap spiralling heating costs.

Speaking to MPs in parliament, the Bank’s governor, Andrew Bailey, said financial markets now expected energy prices to remain high until mid-2023. This follows forecasts only a few months ago of a decline this summer. Bailey said energy prices had been a significant inflationary pressure last year and were responsible for about 1.5 percentage points of November’s 5.1% inflation rate. The Labour MP Rushanara Ali said that implied Ofgem’s cap on bills in April would have the effect of reducing inflation and easing the cost of living crisis.

Figures for wages in November showed pay packets increased by 4.2%, including bonuses, on the previous year, but fell behind the rising cost of living by 0.9%. Unless there was a leap in wages in December, the increase in prices will leave the average worker even worse off. The only positive sign for the chancellor, Rishi Sunak, who has come under intense pressure to provide funds for low income families to cope with rising costs, was that the Office for National Statistics reported a downward trend in the monthly rise in CPI. It increased by 0.5% in December, down from 0.7% in November and 1.1% in October.

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Sources: Techlink