UK inflation hits fresh 40-year high of 9.1%
UK inflation has risen to 9.1% in May from 9% in April as the cost of living crisis squeezes UK households.
It’s the highest since March 1982, according to the figures from the Office for National Statistics (ONS).
Inflation had already hit a 40-year high when it reached 9% the previous month. The latest figures mean inflation is almost five times higher than the Bank of England's (BoE) target of 2%.
Last week the BoE warned inflation was on course to reach 11% later this year as gas and electricity prices soar.
Prices rose 0.7% in the month alone, which marks a slowdown from the 2.5% pace recorded in April when the new energy price cap came into effect. Still, the numbers show prices are rising across the economy.
Average petrol and diesel prices in May were the highest on record, the ONS said – 165.9 pence per litre for petrol, compared with 127.2p a year earlier, and 179.7p per litre for diesel.
The 12-month rate for motor fuels was 32.8%, the highest since before the start of the data series in January 1989.
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“Though still at historically high levels, the annual inflation rate was little changed in May,” said ONS chief economist Grant Fitzner.
“Continued steep food price rises and record high petrol prices were offset by clothing costs rising by less than this time last year, and a drop in often fluctuating computer games prices.
“The price of goods leaving factories rose at their fastest rate in 45 years, driven by widespread food price rises, while the cost of raw materials leapt at their fastest rate on record.”
The retail price index, which is used to determine train ticket prices and to which some index-linked bonds are pegged, surged 11.7%.
Chancellor Rishi Sunak said: “I know that people are worried about the rising cost of living, which is why we have taken targeted action to help families, getting £1,200 to the eight million most vulnerable households.
“We are using all the tools at our disposal to bring inflation down and combat rising prices – we can build a stronger economy through independent monetary policy, responsible fiscal policy which doesn't add to inflationary pressures, and by boosting our long-term productivity and growth."
Read more: UK inflation set to hit 9.1% as cost of living bites
The producer price index, which tracks the price of goods leaving factories, surged to 15.7pc in May. That's up from 14% the previous month and well ahead of forecasts.
The British Chambers of Commerce said the number of businesses reporting that they plan to raise prices was "far beyond anything we've seen since our records began in 1989".
Connor Campbell at NerdWallet said: “A further spike in inflation was expected – but this will offer little comfort to struggling households, particularly as wages aren’t keeping up. Indeed, recent research from NerdWallet found that almost half (46%) of UK SMEs have not raised employee wages in line with inflation, suggesting that the financial strain will persist for some time."
The ONS said as wholesale gas prices quadrupled in the last year, the rise resulted in 12-month inflation rates of 53.5% for electricity and 95.5% for gas in April. These are unchanged in May.
Helen Dickinson, chief executive of the British Retail Consortium, said: “Households and businesses in the UK are continuing to feel the squeeze from rising prices, as higher energy prices, a tight labour market and increasing transport and commodity costs filter through to consumers. Fierce competition for market share means that retailers will continue try to absorb as much of these costs as possible and look for cost-savings elsewhere.”
“Retailers are working hard to do what they can to protect their customers from price rises, including by expanding value ranges, keeping the cost of essentials down and providing discounts for certain vulnerable groups. With inflation only set to rise, the BRC will continue to work with retailers to find ways to mitigate future price rises.”
Alice Haine, personal finance analyst at Bestinvest, said things are only going to get worse for consumers.
“People’s spending power is now severely hampered, and households need to do some serious financial stock-taking if they want to continue to afford the level of lifestyle they have become accustomed to.
"With prices heading ever higher, slashing budgets now to reduce spending is vital for those that want to ride out the year with their bank balance still in the black, as runaway inflation means your salary simply does not stretch as far.
“Making stringent cutbacks on everyday spending and minimising luxuries such as eating out, holidays and clothes shopping will all help but for some households already nearing breaking point, starker choices will have to be made. These could include more drastic cuts such as going down to one car or even considering moving to a smaller property to reduce mortgage or rental payments.
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Jack Leslie, senior economist at the Resolution Foundation, said: “The latest inflation is worryingly high, but will feel low for consumers as it predates the big spike in petrol prices over the past month.
“With inflation also being driven by rising energy bills and food prices, poorer households are experiencing the greatest cost-of-living pressures, with their own inflation rate already in double digits.
“This is why the chancellor was right to prioritise vulnerable families in his latest cost-of-living support via additional means-tested flat-rate payments, and is right to uprate benefits in line with this September’s inflation next year.
“With the economic outlook so unclear, no-one one knows how high inflation could go, and how long it will continue for – making fiscal and monetary policy judgements particularly tough.”
All eyes will now be on the Bank of England, which is under pressure to do more to stop runaway inflation.
Mike Bell at JP Morgan Asset Management says sky-high inflation leaves the Bank of England facing a dilemma.
"On the one hand, real wages are already being squeezed by higher prices. Increasing borrowing costs further, on top of rising food and energy prices, could feel like rubbing salt in the wound for some households and increases the risk of a recession.
"However, there is also the risk that without further rate rises a wage price spiral could develop.
"The Bank of England are therefore stuck between a rock and a hard place. Nevertheless, we expect them to keep raising rates until there are clear signs that the labour market is weakening."
Tom Stevenson at Fidelity International warns the Bank's efforts to curb inflation could tip Britain into a recession.
"The Bank of England is battling a toxic combination of high inflation and stagnant growth. It means policymakers are pulled in two opposing directions, an impossible balancing act for rate-setters.
Rates look likely to rise to 3% next year but, while this may take the heat out of inflation, it will come at a heavy cost. A recession looks increasingly likely."
Watch: How does inflation affect interest rates?