Daily Management Review

Inflation Rate In UK Hits 5.5%, A New High For 30 Years


Inflation Rate In UK Hits 5.5%, A New High For 30 Years
Inflation in the United Kingdom was 5.5 per cent in January, slightly higher than projections and still at a 30-year high.
Consumer prices fell by 0.1 per cent on a monthly basis, slightly less than economists predicted in a Reuters poll. The yearly rate of growth was predicted to stay at 5.4 per cent.
Consumer prices rose at their fastest rate since 1992 December, prompting the Bank of England to raise interest rates for the first time since 2004 in an effort to rein in spiraling inflation.
The Bank forecasts inflation to reach 7.25 per cent in April, up from a previous forecast of 6 per cent in its December report.
According to the Office for National Statistics, the Consumer Prices Index including owner occupiers' housing costs (CPIH) increased by 4.9 per cent in the 12 months to January 2022, up from 4.8 per cent in December.
Energy, fuel, and food, as well as other products like used automobiles, were the biggest contributors.
The Bank of England's next policy meeting, according to Hinesh Patel, portfolio manager at Quilter Investors, is now likely to be a "rubber-stamping" for a further hike in interest rate. But the only issue that cropped up is whether the Monetary Policy Committee would go in for a hike of 25 basis points or 50 basis points.
“While there are signs that some of the supply chain bottlenecks are easing, and that prices for certain goods are moderating, the upside inflation risks remain clear,” Patel said.
He added that tensions between Russia and Ukraine are keeping gas prices high as energy expenses continue to rise, but that a mild winter and spring, as well as a potential de-escalation in eastern Europe, could help to calm prices.
“We currently have extremely tight labor markets at the moment through a combination of Brexit, long Covid and early workforce leavers, none of which will be addressed by monetary policy in the here and now,” Patel added.
As energy prices rise, households in the United Kingdom are feeling the strain of a cost-of-living crisis. As a result of the increase, the country's energy regulator raised its energy price cap by 54% from April, as supply-side issues continue to push costs higher.
“Households should brace themselves for further acceleration in the cost of living until at least the second half of 2022, particularly when the energy price hike is implemented in April,” said Colin Dyer, client director at Abrdn Financial Planning.
“The Bank of England could also be justified in raising interest rates more than once over the next few months to defend these soaring prices – meaning even more challenges may lie ahead for households.”