As increased energy costs, surging demand, and supply chain concerns continued to drive up consumer prices, the UK inflation rate rocketed to a 30-year high in December.
Inflation reached 5.4 percent for the year, the highest level since March 1992, and up from 5.1 percent in November, which was a decade high. According to a Reuters survey, economists projected a 5.2 percent gain. Consumer prices increased 0.5 percent on a monthly basis, above economist expectations of a 0.3 percent increase.
The rising cost of living is causing the Bank of England to reconsider boosting interest rates. The Bank of England (BOE) became the first major central bank to begin lowering borrowing prices from their pandemic-era lows in December of this year.
Following the 15-basis-point rise to 0.25 percent in December, the Monetary Policy Committee's next meeting on Feb. 3 will be carefully watched by markets, with policymakers pondering another rate increase. The Bank is also working in a very tight labor market, with job openings at a record high and employment at a level that is still lower than it was before the pandemic, according to CNBC.
UK inflation affects energy bills, basic needs prices
In December, the main contributions to increasing inflation were price increases related to hospitality, transportation, housing, and household services. In addition to other considerations, higher charges for pubs and restaurants pushed up the cost of eating out for Brits.
After Ofgem cut the energy price cap in April 2020, the cost of electricity, gas, and other fuels plummeted. The price cap was raised by 12% in October 2021 as a result of increases in gas and electricity prices in April 2021, and it has stayed at that level ever since.
The chief executive of the trade organization UK Hospitality, Kate Nicholls, has pushed the government to keep the VAT concession for hospitality firms, which began at the start of the pandemic and is set to finish in April. The decrease went from 20% to 12.5 percent at the start of the pandemic.
Food prices and hospitality are the "two major drivers to inflation," she added, adding that food supply costs are expected to climb by another 8-10 percent this quarter. Transport expenses reduced during the first coronavirus lockdown in spring 2020 since significant swaths of the country worked from home and social gatherings were limited and restricted.
The CPI began to grow in March 2021 as a result of higher gasoline prices, and petrol pump prices hit new all-time highs in November, only weeks after a new all-time high was set. The average price of gasoline in December 2021 was 145.8 pence per liter, up from 114.1 pence per liter a year before that.
Although the RAC has criticized merchants of overcharging customers, petrol prices began to dip at the end of the month. Pumpwatch, an independent pricing monitor, has been urged by campaigners to be established by the government in order to lower costs. In Scotland, rail tickets will rise by 3.8 percent next week, and by the same amount in England in March, according to the latest figures. When it comes to train price hikes, Wales is anticipated to follow England's lead, as per MSN.
Bank of England under "great pressure"
Inflation, worryingly, is still a long way from reaching its high, with the Bank of England expecting that it would reach 6% in April. According to some estimates, it might be closer to 7% in actuality. Today's data add to the pressure on interest rates for the Bank of England, whose objective is 2%, with the next decision expected in just over two weeks.
The Bank is under "tremendous pressure" to act, according to Ed Monk, associate director at Fidelity International. Some analysts are forecasting three rate hikes this year, according to Monk. Previously, the Bank has been reluctant to raise interest rates due to concerns over the strength of the employment market and the possibility of a stifling recovery while the UK recuperates from the pandemic.
Some of the current price spikes have also been due to temporary surges in demand and supply chain shortages when economies power up again following the shutdown, according to some sources. Fears over the labor market's health were put to rest this week when ONS numbers indicated that the number of people on the payroll has risen to levels not seen since the pandemic with unemployment and redundancies declining as well, Express reported.
