UK inflation hits 40-year high

Driven by rising food and petrol prices, putting further pressure on the Bank of England to take bold action, the consumer prices index (CPI) rose 9.1 per cent in May compared with the same period last year, the highest since 1982 and up from 9 per cent in April, according to the Office for National Statistics (ONS). This means, the inflation hit a 40-year high last month.
 
The CPI is expected to peak above 11 per cent this autumn, far higher than in the US and the European Union, as a result of the jump in household energy bills.
 
The Bank of England has raised interest rates at its past five meetings and markets expect it will have to step up its efforts to tighten the economy in the coming months. The benchmark interest rate stands at 1.25 per cent, the highest since 2009, and analysts expect it to climb above 3 per cent by the end of the year.
 
Higher inflation will cause a prolonged slowdown in the economy over the next three years, according to the Bank, as household incomes are hit by higher food costs at the same time as higher interest rates push up borrowing costs and lift unemployment levels from record lows. Rate-setters have said they will act “forcefully” to contain inflation if there are strong signs that higher prices could become a stubborn feature of the economy and fail to respond to rising interest rates.