UK sees highest inflation since 1992, putting pressure on BoE and households

  • CPI climbs to 5.4% in December, its highest level since March 1992
  • Rising food and fuel prices increase the cost of living
  • The Bank of England is expected to raise interest rates next month
  • Some signs of easing price pressures for manufacturers

LONDON, Jan 19 (Reuters) – Inflation in Britain rose faster than expected to hit its highest level in nearly 30 years in December, intensifying pressure on living standards and putting pressure on the Bank of England to raise interest rates again.

The annual rate of consumer price inflation rose to 5.4% from 5.1% in November, the highest since March 1992, the Office for National Statistics said. Economists polled by Reuters had expected a 5.2% rise.

Financial markets are now banking on a more than 90% chance that the BoE will raise its main interest rate to 0.5% on February 3. Last month it became the first major central bank in the world to tighten policy since the start of the COVID-19 pandemic. .

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“The Bank of England was already feeling uneasy about its monetary policy. Today’s upside surprises on headline and core inflation figures certainly won’t have helped,” he said. said Ambrose Crofton, global markets strategist at JP Morgan Asset Management.

Yields on two-year UK government bonds, which are sensitive to financial market interest rate expectations, were a hair’s breadth from their highest level since 2011.

Inflation rose sharply in most advanced economies, reflecting a global rise in energy prices and supply chain difficulties.

But the BoE seems more concerned than the US Federal Reserve or the European Central Bank that labor shortages and wage pressures will dampen inflation once the immediate price pressures pass.

Speaking to lawmakers on Wednesday, Governor Andrew Bailey said financial markets expected energy prices to take longer to fall than two months ago, while BoE staff had found tentative signs that inflation was driving up wage settlements.

“Please don’t think we don’t think these are serious pressures. They are,” Bailey said, when asked if the central bank had been complacent about the risks. of price.

A rise in cases of the Omicron variant of the coronavirus had a negligible impact on inflation, ONS statisticians said.

People shop at a supermarket in London, Britain December 24, 2021. REUTERS/Kevin Coombs/File Photo

Instead, food, hotel and household goods prices were the main drivers of higher inflation in December, while fuel prices – the main driver in previous months – remained low. recent highs.

“Not only does this provide further evidence that inflation is becoming endemic rather than transitory, but it bodes ill for households facing multiple cost-of-living hikes this spring,” said Kitty Ussher, chief economist at the Institute of Directors.


UK inflation is expected to peak in April, when regulated household energy bills are expected to rise by around 50%. Last month, the BoE predicted a peak of around 6%, but some economists now see 7% as more likely.

Inflation was only 0.6% in December 2020 and the BoE had to revise its forecast several times last year. A new inflation forecast is expected on 3 February. The latest in November showed inflation to remain above its 2% target until mid-2024.

Rising inflation is also turning into a political problem for Prime Minister Boris Johnson’s government, which is facing calls from the opposition and charities to offset rising energy bills, which comes in along with an increase in payroll taxes to fund higher health and social spending. care expenses.

“I understand the pressures people are facing with the cost of living, and we will continue to listen to people’s concerns,” Finance Minister Rishi Sunak said after the inflation data.

Wednesday’s figures showed the core CPI – which excludes the more volatile prices of food, energy, alcohol and tobacco – hit a record 4.2% from 3.9 % of November.

Retail price inflation – an older measure which the ONS says is no longer accurate, but is still widely used by government and businesses – hit a 30-year high of 7.5% against 7.1%.

Factory price inflation showed tentative signs that cost pressures may have peaked, coming back to 9.3% from 9.4% in November. Inflation in costs paid by producers for materials and energy also fell, from 15.2% to 13.5%.

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Reporting by David Milliken; Editing by Andy Bruce, John Stonestreet and Hugh Lawson

Our standards: The Thomson Reuters Trust Principles.

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