UK inflation hits 9%, the highest level in more than 40 years
Wednesday 18 May, 2022
Daily Currency UpdateUK inflation soared to 9% in April – its highest level since 1982 – as the rising cost of gas and electricity pushed household energy bills to record levels. Consumer Price Index rose 2.5% on the month, the biggest monthly increase since 1991, as the cap on household electricity and gas prices was adjusted to reflect the sharp rise in wholesale prices caused by Russia's invasion of Ukraine. Core CPI, which excludes food and energy prices, also rose strongly by 0.7%, as a reopening economy quickly ran into bottlenecks caused partly by supply chain problems stemming from the pandemic and partly by a skills shortage caused by the loss of EU workers from the workforce. Labour market figures released yesterday showed that average total wages increased by 7% in March, pushed up by bonus payments to staff and consultants working in the finance, IT, construction, and professional services sectors. The pound has come under heavy pressure in recent days, not only from inflation but also from government plans to unilaterally change some of the terms of the agreement governing its exit from the European Union. EU officials have warned that it may suspend the whole agreement if the UK goes ahead, leading to the immediate imposition of tariffs on UK goods entering the single market and tighter restrictions on UK businesses.
Key MoversThe equivalent CPI data from the Eurozone is scheduled for release later today and is expected to show annual consumer inflation at 7.5% in April, with the monthly figure climbing 0.6%. The European Central Bank has been relatively slow in starting to tighten monetary policy, but expectations are growing that the bank could be forced to raise interest rates in the summer given the inflationary threat. European Central Bank Governing Council member, Klaas Knot, on Tuesday became the first official to suggest a possible half-point interest rate hike if inflation risks worsen, although he currently supports a quarter-point increase in July, which could provide the euro with some support.
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