UK inflation rises to highest in nearly 30 years

Pressure mounts on Bank of England to raise rates again next month

British consumer price inflation (CPI) rose more than expected to 5.4 per cent in December, its highest in almost 30 years, official data showed on Wednesday, adding pressure on the Bank of England to raise interest rates again next month.

Economists polled by Reuters had forecast that the annual CPI rate would edge up to 5.2 per cent in December from November’s 5.1 per cent.

The increase in CPI to its highest since March 1992 reflected a wide range of goods and services, with the biggest impact coming from food and drink, followed by restaurants and hotels and furniture and household goods.

The Bank of England last month became the world’s first major central bank to raise interest rates since the start of the Covid-19 pandemic, a day after data showed CPI had unexpectedly surged to a 10-year high in November.

Rising inflation is also turning into a political problem for prime minister Boris Johnson’s government, which faces calls from the opposition and charities to offset an expected 50 per cent rise in the regulated household energy prices this April.

The BoE forecasts CPI will peak at a 30-year high of about 6 per cent in April due to the higher energy bills, and that it will take more than two years for CPI to return to its 2 per cent target.

Financial markets see a high chance that the BoE will raise rates again on February 3rd, and announce that it will allow its £875 billion (€1.05 trillion) stock of government bonds to fall as the gilts begin to mature.

Wednesday’s figures showed that core CPI – which excludes sometimes-volatile food, energy, alcohol and tobacco prices – rose to a record high 4.2 per cent in December from November’s 3.9 per cent.

Retail price inflation – an older measure that the UK’s Office for National Statistics says is no longer accurate, but which is still widely used by government and businesses – rose to 7.5 per cent in December from a 30-year high of 7.1 per cent in November. – Reuters