UK Inflation 30 Year High

UK inflation jumped to its highest annual rate for 30 years last month as higher energy prices, increasing demand and ongoing supply chain issues continued to drive up consumer prices. Inflation hit an annual rate of 5.4%, its highest since March 1992 and up from 5.1% in November, itself a decade high. Consensus had been for an increase of 5.2%. The retail price index, which is used for pricing some public services including train fares, surged 7.5%. That's well ahead of the 7.1% forecast and the most since 1991. RPI excluding mortgage payments hit 7.7%.

The Office for National Statistics also published figures which showed annual wage growth at 3.8% in December, meaning that workers are facing a real-terms pay decline, adding to the fear that in-work poverty is growing.

Chief economist at the Office for National Statistics (ONS), Grant Fitzner said of the figures ‘Food prices again grew strongly while increases in furniture and clothing also pushed up annual inflation. These large rises were slightly offset by petrol prices, which despite being at record levels were stable this month, but rose this time last year. The closures in the economy last year have impacted some items but, overall, this effect on the headline rate of inflation is negligible’.

Chancellor Rishi Sunak also reacted to the rise in inflation, saying: ‘I understand the pressures people are facing with the cost of living and we will continue to listen to people’s concerns as we have done throughout the pandemic’, adding ‘We’re providing support worth around £12bn this financial year and next to help families with the cost of living. We’re cutting the Universal Credit taper to make sure work pays, freezing alcohol and fuel duties to keep costs down, and providing targeted support to help households with their energy bills’.

What was happening in the UK in 1992? Well, in September of that year the Conservative Government was forced to pull sterling from the European Exchange Rate Mechanism (ERM) after failing to keep it above the lower currency exchange limit. The crisis is estimated to have cost the Treasury more than GBP3bn. It marked the beginning of the end for John Major and put the Tories out of power after robbing them of their reputation for economic competence.

Fixed Income Team