Inflation in the United Kingdom has reportedly reached its highest level in 30 years, at 5.4 percent, straining household incomes and putting significant pressure on the Bank of England to raise interest rates.
The annual rise in the Consumer Price Index (CPI) has resulted in higher prices for most goods and services, meeting economists' expectations of a 5.1% to 5.2 percent increase from November 2021 to December 2021.
The current CPI inflation rate of 5.4 percent is the highest since March 1992, when the UK's inflation rate was 8.4%.
The Bank of England is currently under pressure to raise interest rates in order to reduce spending and bring inflation down to the 2% target, but it is hesitant to do so because it does not want to pressure household budgets too much and jeopardise the economy's Covid recovery.
At the moment, inflation is expected to reach 6% in the spring, with gas and electricity prices rising to reflect higher wholesale energy prices.
In December, prices rose significantly faster than wages, with wages rising at an annual rate of 3.8 percent, resulting in a 1.6% decrease in real income.
Chancellor Rishi Sunak stated that he understands the "pressures people face with the cost of living," adding that "we will continue to listen to people's concerns as we have done throughout the pandemic."
The increase in inflation levels is reported to have occurred across the United States and Europe, and Grant Fitzer, ONS' Chief Economist, stated that while there was little evidence that the Government's Plan B Covid Restrictions were the cause of the rising prices, “the closures in the economy last year have impacted some items but, overall, this effect on the headline rate of inflation is negligible”
The ONS noted that increases in food prices, household goods, clothing, footwear, restaurant bills, furniture, and hotels pushed up inflation in the run-up to Christmas, with food inflation reaching a nine-year high of 4.5%.
The Bank of England is under increased pressure to act so that this price level does not become normal for businesses and households.
Economists expect the inflation rate to reach 6.5% if the government does nothing to limit the rises in energy prices, but it is still expected to reach 6% regardless of whether Sunak acts to limit these rises.
Written by Naomi Adeoti
Research compiled by Joe Eastment