Surging petrol and food prices last month pushed British inflation to its highest in 40 years, according to official figures that bolstered the chances of a rare half percentage-point Bank of England (BoE) interest rate hike next month.
The Office for National Statistics (ONS) said annual consumer price inflation rose in June to 9.4%, the highest since February 1982, up from May's 9.1%.
The latest increase means Britain had the highest rate of inflation in June among the Group of Seven (G7) advanced economies, though many smaller EU countries are seeing even faster growth in prices.
This week's data bolstered bets that the BoE will opt for a 50-basis point rate hike next month.
The bank has raised borrowing costs five times since December as it tries to stop the surge in inflation from becoming embedded in Britain's economy. It is expected to increase them again on August 4 after its next monetary policy meeting.
The ONS pointed to a 42% year-on-year rise in petrol prices and an almost 10% increase in food prices as the primary drivers of inflation last month.
“Soaring inflation means momentum for a half-point interest rate rise in August is growing,” said Suren Thiru, economics director of accountancy trade body ICAEW.
“However, tightening monetary policy too aggressively increases the risk of recession and will do little to address the global factors driving this inflationary surge.”
Investors now see an almost 100% chance of the BOE raising the bank rate to 1.75% from 1.25% next month. It said in June it was ready to act “forcefully” if needed.
The cost-of-living crunch has triggered a wave of industrial action by trade unions and been hotly debated among the candidates in the race to replace Boris Johnson as prime minister.
The ONS said core inflation in June fell to 5.8% from 5.9% in May, which could reassure BOE rate-setters who might be reluctant to hike rates more aggressively.
But there were signs of further inflation pressure ahead.
Prices paid by factories for materials and energy, a key determinant of prices later paid by consumers in shops, were 24.0% higher in June than a year earlier, the biggest increase since these records began in 1985, the ONS said.
Reuters
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