Uk inflation hits new 40-year high of 9. 4% as cost-of-living crisis deepens

ONS figures showed that real wages in the U.K. over the three months to May experienced their steepest decline since records began in 2001. Henry Nicholls | Reuters LONDON — U.K. inflation

hit yet another new 40-year high in June as food and energy prices continued to soar, escalating the country's historic cost-of-living crisis. The consumer price index rose 9.4%

annually, according to estimates out Wednesday, slightly above a consensus forecast among economists polled by Reuters and up from 9.1% in May. This represented a 0.8% monthly incline in

consumer prices, exceeding the the previous month's 0.7% rise but remaining short of the 2.5% monthly increase in April. The U.K.'s Office for National Statistics said in

Wednesday's report that its indicative modelled consumer price inflation estimates "suggest that the CPI rate would last have been higher around 1982, where estimates range from

nearly 11% in January down to approximately 6.5% in December." The most significant contributors to the rising inflation rate came from motor fuels and food, the ONS said, with the

former soaring 42.3% on the year, the highest rate since before the start of the constructed historical series in 1989. 50 BASIS POINT HIKE? The Bank of England has implemented five

consecutive 25 basis point hikes to interest rates as it looks to rein in inflation, but Governor Andrew Bailey suggested in a speech at the Mansion House Financial and Professional Services

Dinner on Tuesday that the Monetary Policy Committee could consider a 50 basis point hike at its August policy meeting. This would constitute the U.K.'s biggest single increase in

interest rates for nearly 30 years, and Bailey vowed that there would be "no ifs or buts" in the Bank's commitment to return inflation to its 2% target. The governor has

received public criticism from several of the Conservative Party hopefuls to replace Boris Johnson as prime minister. "From the perspective of monetary policy, these times are the

largest challenge to the monetary policy regime of inflation targeting that we have seen in the quarter century since the MPC was created in 1997," Bailey said. "That emphatically

does not mean the regime has failed. Far from it. The regime was set up for times exactly like these. The regime, founded on central bank independence, is now more important than ever. The

worth of any regime is tested in the difficult, not the nice, times." The Bank expects inflation to peak at around 11% later in the year, while new ONS figures Tuesday showed that real

wages in the U.K. over the three months to May experienced their steepest decline since records began in 2001, as pay increases failed to draw close to the inflation rate. "The intense

cost of living squeeze is putting significant pressure on the UK's consumer-led economy and means the risk of recession is high," said Hussain Mehdi, macro and investment

strategist at HSBC Asset Management. "Nevertheless, the Bank of England is likely to remain in uber-hawkish mode as it attempts to counter the risk of a wage-price spiral developing

with recent data suggesting a still hot labor market that is contributing to domestic inflationary pressures."