Sterling Hit As UK Inflation Hits New 40-Year High
The Bank of England’s forecast that UK inflation will hit 11% by the end of the year has sparked fresh fears about a slowing economy. Meanwhile, the Bank of England is widely expected to raise interest rates in August. As a result, sterling has been hit, falling against the stronger U.S. dollar. At 09:27 GMT, the British pound was down 0.3% at $1.2255.
The British government is facing a huge challenge in replacing access to the EU single market, with Sterling under pressure due to recent political turmoil. The UK government has been unable to make headway on trade agreements since Brexit, and it appears talks will be piecemeal. But despite the uncertainty, economists are predicting the pound to weaken. One strategist, Steven Barrow at Standard Bank, sees the euro strengthening against sterling in the third quarter.
The biggest contributor to the rise in prices is food, which contributed 1.5%. The fastest rising sectors were cereals, bread, and meat. Meanwhile, motor fuel prices jumped by 32.8% over the past year, the biggest jump since 1989. Inflation is expected to continue to rise over the coming months, with the next peak in petrol prices. The government is now warning that its currency may fall by up to 50% by June 2022.
UK inflation is likely to remain above 9 percent throughout the year, but it is expected to peak at just under 11 percent in October. Household energy bills are also set to rise in October. The British government is doing all it can to combat the inflation threat. However, the rising cost of living is already driving workers to seek pay rises as they need them to make ends meet. The Conservative government has warned against an inflationary spiral as the country faces a huge cost-of-living squeeze.
The United Kingdom’s interest rates have been increasing for months as central banks try to rein in rising prices. Last week, the Bank of England raised rates for the fifth time in a row, taking them to their highest level since the start of constructed historical series in 1989. As a result, prices are rising across the board, and this is particularly true for fuel and energy bills. The analysts at Cornwall Insight predict that energy bills will reach PS3,003 per year. The war in Ukraine continues to impact prices of gas globally.