The UK’s 40-year high inflation is on course to have climbed again in July, with analysts expecting it to be within a whisker of double digits.
Surging oil and gas prices, coupled with climbing food costs, are weighing heavily on the UK economy, with food and energy bills to now cost more than 50% of a UK worker's average pay.
Inflation data for July will be released on Wednesday, with economists polled by Reuters expecting the consumer price index (CPI) to have risen by 9.7% year on year.
Inflation is usually measured by comparing the cost of things today with a year ago. This average increase in prices is known as the inflation rate.
“We expect headline CPI to near double digits in July, touching 9.8% year-on-year (Bank of England: 9.9% y-o-y) up from 9.4% in June,” Sanjay Raja, senior economist at Deutsche Bank, said.
“Further out, we've upgraded our projections yet again. We see headline CPI topping near 13% y-o-y in October, while averaging close to 10% until Q4 next year,” he added.
Earlier this month, the Bank of England (BoE) warned that UK inflation would peak at 13.3% in October and that the country would fall into recession by the end of the year amid a cost of living crisis.
Matthew Ryan, head of market strategy at Ebury, predicts Wednesday’s inflation print has a "decent chance" of tipping into double digits, all but guaranteeing a second successive 50 basis point rate hike at its September meeting.
He said: “We see a decent chance that the headline inflation number may have tipped into double-digits last month (9.8% expected). In our view, this would all but guarantee another 50 basis point interest rate hike from the Bank of England at its next meeting in mid-September.”
The BoE has said there is little it can do to stop inflation in the short term and its priority is to stop the jump in prices from pushing up longer-term inflation expectations, which would make the problem much harder to fix.
The energy price cap, the maximum amount companies can charge, is currently set at £1,971 a year — but it is expected to climb to almost £3,600 a year in October and over £4,200 in January. Some energy consultancy firms are already warning that household energy bills could surge above £5,000 next year.
Belts are tightening in response to rising prices
Shoppers have witnessed their grocery bills surge at the fastest rate since 2008 following spikes in the price of butter, milk and chicken.
Research firm Kantar has revealed grocery price inflation jumped to 11.6% for the four weeks to 7 August, compared with 9.9% in the previous month.
It said this equates to a £533 annual increase in the average UK household’s grocery bill.
As a result, it reported sales of own-label value products increased by almost a fifth — 19.7% — as shoppers sought to make savings.
Fraser McKevitt, head of retail and consumer insight at Kantar, said: “As predicted, we’ve now hit a new peak in grocery price inflation, with products like butter, milk and poultry in particular seeing some of the biggest jumps.
“This rise means that the average annual shop is set to increase by a staggering £533, or £10.25 every week, if consumers buy the same products as they did last year.
“It’s not surprising that we’re seeing shoppers make lifestyle changes to deal with the extra demands on their household budgets.”
It came as overall supermarket sales rose by 2.2% in the 12 weeks to 7 August.
Experts said that consumers are now shopping around more and switching supermarkets in response to the cost-of-living crunch.
Richard Walker, the boss of discount supermarket Iceland, reported that his customers are switching towards frozen food, as a way to reduce waste, and buying fewer items as they try to manage their cash.
The real value of UK workers’ pay continued to fall at the fastest rate for 20 years in June as wage increases were outstripped by soaring inflation amid the cost of living crisis.
For the country’s lower earners, experts are warning that the UK's inflation rate will hit 18%, which will result in bills becoming "horrendously unaffordable".
Research from the Institute for Fiscal Studies (IFS) said that by October, the poorest fifth will experience inflation of 17.6% while the richest will see a rate of 10.9%.
The think tank said that the poorest fifth of earners are currently dealing with inflation of 10.8%. In comparison, the same study from the IFS showed the richest fifth are only facing inflation-hikes on prices of 8.5%.
“Inflation is set to hit an incredible 18% for lower earners this year. This winter’s bills are going to be so horrendously unaffordable that there’s widespread agreement that something needs to be done,” Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said.
“Unfortunately, while there are plenty of potential solutions being bandied about, we don’t yet know who will be a position to make a decision, and with every day that passes, it means people waiting even longer to get the help they need.”
For example, a single parent who is out of work will be £460 poorer in October due to rising inflation rate. Furthermore, the average earner in the UK will be £760 worse off.
With price increases occurring across the board, UK households face a fall in living standards over the coming fiscal year of 2.2%, a drop not seen since records began in the 1950s.
The latest inflation figures will be published by the Office for National Statistics (ONS) on Wednesday.