Consumer prices in the United Kingdom rose at the fastest pace in three decades in March, official data showed Wednesday, piling pressure on the embattled Prime Minister Boris Johnson and his finance minister, Rishi Sunak, to ease the cost-of-living squeeze.
Fueled by soaring prices for household energy and motor fuels, the U.K. inflation accelerated to 7% in the 12 months through March, the highest annual rate since March 1992, the Office for National Statistics (ONS) reported.
The reading was up from 6.2% in February and came in more than expected by most economists.
The month-on-month rise was the highest for the time of year since the ONS records began in 1988.
Households are facing the biggest cost-of-living squeeze since the mid-1950s, according to Britain's budget forecasters, as rocketing energy costs, rising food prices and tax increases overshadow rising wages.
'Worrying time'
And the inflation overshoot is further bad news for the government too.
Johnson and Sunak were fined by police on Tuesday for attending a June 2020 birthday party for Johnson at his Downing Street office at a time of COVID-19 restrictions, leading to calls from political opponents for them to resign.
Sunak – previously seen as a leading candidate to succeed Johnson as prime minister – has seen his popularity slide after a budget statement in March, which the public judged did too little to ease cost-of-living pressures and recent revelations of his wife's tax avoidance.
"I know this is a worrying time for many families, which is why we are taking action to ease the burdens by providing support worth around 22 billion pounds ($29 billion) in this financial year," Sunak said after the data was released.
Jack Leslie, senior economist at the Resolution Foundation think tank, said Sunak would come under pressure to do more.
"The sheer scale of this inflation-led squeeze on living standards makes it all the more remarkable how little support the chancellor provided in his Spring Statement – a decision that will surely have to be revisited before the Autumn Budget," Leslie said.
Disposable household incomes, adjusted for inflation, are expected to drop by 2.2% this year, according to the government’s independent budget adviser.
Broad-based price rises, ranging from vehicle fuel to food and furniture, were behind the increase.
Household natural gas prices jumped 28.3% over the last year, and electricity prices rose 19.2% as the global economy recovered from the COVID-19 pandemic, increasing the worldwide demand for energy.
Prices will continue to rise after Britain’s energy regulator authorized a 54% increase in gas and electricity bills for millions of households that took effect in April.
Transportation costs are also rising, with the cost of gasoline and diesel fuel shooting up by an average of 30.7% over the past year, the biggest increase since current records began in January 1989, the ONS said.
British inflation has seen an unprecedented rise over the past year, following a similar pattern to most other advanced economies as countries reopened from COVID-19 lockdowns, energy prices surged and pandemic supply-chain difficulties persisted. Adding to the pressure is the fallout from the war in Ukraine.
Russia’s invasion of Ukraine on Feb. 24 has pushed energy prices even higher, and last month Britain's Office for Budget Responsibility forecast inflation would peak at a 40-year high of 8.7% in the final quarter of 2022.
"We’re seeing rising costs caused by global pressures in our supply chains and energy markets, which could be exacerbated further by Russian aggression in Ukraine," Sunak said.
"I know this is a worrying time for many families," added the embattled chancellor of the exchequer.
Rising rates
Elsewhere, U.S. inflation rose by a huge 8.5% over the 12 months to March, the biggest jump in four decades, the U.S. Labor Department said Tuesday.
Sharp price spikes across the board are forcing central banks around the world to hike interest rates, curbing economic growth recovery.
Financial markets are all but certain the Bank of England (BoE) will raise interest rates to 1% from 0.75% on May 5 before taking them to 2%-2.25% by the end of 2022, though many economists expect it to be less aggressive.
European Central Bank (ECB) governors will meet Thursday to ponder record-high inflation in the eurozone and fresh economic uncertainty caused by the war in Ukraine, with policymakers signaling a willingness to take action sooner rather than later.
The U.S. Federal Reserve (Fed) and the BoE have already announced their first rate hikes to combat price pressures, leaving the ECB looking out of step.
The BoE forecasts economic growth will slow sharply over the course of this year as the cost of living pressures mounts.
Samuel Tombs, chief U.K. economist with Pantheon Macroeconomics, forecast inflation will hit 8.8% in April after household utility bills rocketed but then fall below the BoE’s 2% target in the second half of next year.
"The MPC (Monetary Policy Committee), therefore, still has good grounds for arguing that a further substantial tightening of monetary policy would do little to restrain inflation in the near term but would run the unnecessary risk of pushing it substantially below the 2% target next year," Tombs said.
Wednesday’s data showed that core CPI, which excludes food, energy, alcohol and tobacco prices, rose to 5.7% in March from 5.2% in February.
Retail price inflation – an older measure that the ONS says is inaccurate, but which is widely used in commercial contracts and to set interest payments on inflation-linked government bonds – rose to 9%, its highest since 1991.
There were signs of further inflation pressure ahead as manufacturers increased their prices by 11.9% over the 12 months to March, the biggest jump since September 2008.
Manufacturers’ raw material costs leaped by 19.2%, the biggest increase since records began in 1997.