UK inflation surged to 7% last month, a fresh three-decade high that worsens a cost of living crisis threatening to derail the nation’s economic recovery.

Britain is the teeth of an inflationary surge that has lifted the Consumer Price Index from less than 1% a year ago. The scale of the crisis will become even more striking this month, when a 54% rise in the energy price cap kicks in. Prices rose 1.1% in March alone, the biggest increase for that month on record.

The figures add to the pressure on the Bank of England and Treasury to act on containing inflation and protect consumers from the worst deterioration in their spending power on record. The central bank expects inflation to reach around 8% when April’s reading is announced, with the risk of a double-digit reading later this year.

“Today’s reading underlines the severity of the squeeze on our finances this year,” said Ed Monk, associate director at the fund manager of Fidelity International. “British households are getting poorer in real terms, and many face having to cut back on anything that isn’t essential spending.”

Economists and charities united in calling on Chancellor of the Exchequer Rishi Sunak to do more to help households struggling to make ends meet, saying his latest aid package won’t help many of the families on the lowest incomes.

March’s reading is the last before the BOE’s next rates decision on May 5, when it will also update its forecasts. It marks the sixth straight month that the reading has exceeded the estimates of economists.

“Britain’s cost-of-living crisis – on track to big the biggest squeeze since the mid-70s – will continue to worsen before it starts to ease at some point next year,” said Jack Leslie, a senior economist at the Resolution Foundation, a research group campaigning against poverty. “The sheer scale of this inflation-led squeeze on living standards makes it all more remarkable how little support the chancellor provided in his spring statement.”

In a statement on Wednesday, Sunak said “we are seeing rising costs caused by global pressures in our supply chains and energy markets which could be exacerbated further by Russian aggression in Ukraine. I know this is a worrying time for many families which is why we are taking action to ease the burdens. ”

The gains were driven by a broad increase in prices across the economy, including fuel, metals and used cars. The cost of restaurant meals, hotels, furniture, clothing and shoes also made upward contributions.

“The data tells the story of what millions are currently living – steeper bills on everything from petrol to food and fuel, and less left over at the end of each month to put towards their future,” said Colin Dyer, client director at the fund manager Abrdn.

Gilts tumbled at the open, sending the UK 10-year yield surging 6 basis points to 1.86%. Money markets raised BOE tightening wagers, expecting 143 basis points of rate hikes by year-end versus 137 basis points on Tuesday.

The UK central bank is not the only one grappling with faster inflation. Data on Tuesday showed US consumer prices rose 8.5% in March, the biggest increase since late 1981. That prompted Federal Reserve Bank of St. Louis President James Bullard to suggest that US monetary policy needs to be tightened to a point that it curtails economic growth or policy makers will end up risking their credibility.

In total, more than a quarter of the ONS’s inflation basket is seeing inflation run above 10%.

The retail price index, a measure used to set benefit payouts and interest on inflation-linked debt, rose 9% from a year ago, the most since January 1991.

What Bloomberg Economics Says

“When combined with the latest labor market data, the reading gives the Bank of England all the justification it needs to raise interest rates again in May. Our current base case is that the BOE breaks in the second half of the year, as inflation concerns give way to worries about the growth outlook against the backdrop of a serious cost-of-living crisis. ”

–Dan Hanson and Ana Luis Andrade.

There was also strong evidence of inflationary pressures building at the wholesale level. Producer prices rose 11.9% from a year ago, the most since 2008. Raw materials costs surged 19.2%, the biggest increase since those records began in 1997.

The price of goods leaving UK factories has continued to rise substantially with metal and transport products both at record highs and food reaching its highest rate for more than a decade.

That’s hurting UK retailers, as well as households, with supermarket giant Tesco Plc warning on Wednesday that profits may decline this year as it battles to keep prices low for consumers.

“Retailers are trying to help consumers by expanding their value ranges and doing all they can to keep the price of essentials down,” said Helen Dickinson, chief executive officer of the British Retail Consortium.

© 2022 Bloomberg

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