UK Inflation Adding to Pressure Government, Hits 30-year High

Consumer price inflation in Britain has leaped to its highest level in three decades last month, intensifying the pressure for the government to ease the cost-of-living squeeze.

The annual inflation rate climbed to 7.0% in March from 6.2% in February, its highest since March 1992 and by more than expected by most economists in a Reuters poll, official data showed on Wednesday.

The back-to-back rise was the highest for the time of year since the Office for National Statistics records began in 1988.

British households are facing the biggest cost-of-living squeeze since records began in the 1950s, according to Britain’s budget forecasters, calling the inflation overshoot further bad news for the government.

Finance minister Sunak – previously seen as a leading candidate to succeed Johnson as prime minister – has seen his popularity slide after recent revelations of his wife’s tax avoidance and a budget statement in March, which the public judged did too little to ease cost-of-living pressures.

“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.

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.

British inflation has seen an unprecedented rise over the past year, following a similar pattern to most other advanced economies as energy prices surged and pandemic supply-chain difficulties persisted.

The Russian- Ukraine crisis has also pushed energy prices even higher, and last month Britain’s Office for Budget Responsibility said inflation is expected to peak at a 40-year high of 8.7% in the final quarter of 2022.

Financial markets are all but certain the Bank of England will raise interest rates to 1% from 0.75% on May 5 before taking them to 2%-2.25% by the end of 2022.

The BoE forecasts economic growth will slow sharply over the course of this year as the cost of living pressures mounts.

Samuel Tombs, chief UK 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.

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 9.0%, 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 for them began in 1997.