Rising prices: UK inflation hits 40-year high

Status: 05/18/2022 12:45 p.m

Great Britain has to contend with particularly high inflation among the large industrialized countries: In April consumer prices rose by nine percent. It hits people in the UK hard on a day-to-day basis.

Consumer prices in the UK rose at their highest rate in around four decades in April. As the national statistics office ONS announced today, the inflation rate rose to nine percent last month compared to the same month last year.

That is the highest rate since the latest records began in 1997. By back-calculation, the ONS statisticians conclude that the inflation rate must have been higher around 1982. In March 2022, the rate was still seven percent.

Foreign Minister warns about “extremely high” inflation

Price increases in April came mainly from more expensive electricity, more expensive gas and fuels such as petrol. The prices for groceries and used cars had again risen significantly.

Secretary of State Liz Truss expressed alarm on Sky News: “We are in a very, very difficult economic situation.” The conservative politician spoke of serious headwinds in view of the global problem of soaring prices and called inflation in Great Britain “extremely high”.

According to a survey by the Ipsos institute, the rapidly rising cost of living is hitting the island’s citizens hard: according to this, two out of three Britons are turning off the heating to save costs. More than a quarter of respondents even said they skip meals because of their tight budgets.

Already four rate hikes by the Bank of England

The central bank in London is meanwhile braving itself with interest rate hikes against skyrocketing inflation. At the beginning of May, the Bank of England raised the key interest rate for the fourth time in just six months to 1.0 percent – the highest level since the 2009 financial crisis.

She also warned that UK inflation is likely to rise to 10% this year. The economic outlook is also bleak: Great Britain is likely to slip into recession over the course of the year. For the coming year, the British monetary authorities are expecting economic output to shrink overall, with gross domestic product (GDP) likely to stagnate in 2024.

When will the ECB follow suit?

With its bold rate hikes, the Bank of England is one of the pioneers in the current rate hike cycle in an international comparison. The US Federal Reserve has also taken up the fight against the rapidly rising inflation rates and recently raised its key interest rate by half a percentage point to the new interest rate range of 0.75 to 1.00 percent. Market observers expect the Federal Reserve (Fed) to raise interest rates further; by the end of the year, the key interest rate in the USA should be between 2.75 and 3.0 percent.

Eurozone inflation stagnates at record high

This should put further pressure on the European Central Bank (ECB) to follow the example of the Bank of England and the Fed and also raise interest rates. So far, the euro currency guardians around President Christine Lagarde are still hesitating, but have already held out the prospect of a possible turnaround in interest rates in July. Some economists fear that by then it might be too late and that the ECB will already have lost control of inflation expectations.

In the countries where the euro is the common currency, inflation stagnated at a high level in April. As the statistics office Eurostat announced, prices rose by 7.4 percent compared to the same month last year. Inflation in the European currency area was never this high this month. The medium-term inflation target of the ECB of two percent has thus still been clearly exceeded.

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