inflation in the United Kingdom reached 9.0%. the highest level since 1982 has resulted from a massive increase in regulated residential energy prices.
The consumer price index increased by 2.5% month-over-month, the largest monthly increase since 1991, as the cap on household electricity and gas prices was raised to reflect the substantial spike in wholesale costs brought on by Russia’s invasion of Ukraine. That exacerbated an already severe supply-demand imbalance.
The regulator, Ofgem, forecasts that annual bills for many homes will increase by almost £700 ($868) due to the adjustment, even before the second increase in October takes effect.
In addition, a temporary reduction in value-added tax on numerous items implemented during the pandemic was rescinded.
As a result, the value-added tax (VAT) charged by industries such as food and lodging has risen to 20 percent from as low as 5 percent over the past two years.
Core inflation, which excludes volatile food and energy prices, also climbed sharply, by 0.7%, as a rapidly rebuilding economy came into bottlenecks caused in part by supply chain problems resulting from the virus and in part by a skills deficit resulting from the loss of European Union workers.
Moreover, producer input costs grew by an additional 1.1 percent in April, following a 4.6 percent gain in March, while factory gate prices rose by 2.3 percent for the month, bringing the annual increase to 14 percent.
Although substantial, the majority of U.K. price index hikes were less severe than anticipated. Consequently, their immediate impact on the pound was minimal. By 3:40 AM ET (0740 GMT), sterling had declined against the dollar to $1.2440 and against the euro to $1.1888, a loss of 0.1 percent.
In recent days, the pound has been under intense pressure, not only because of inflation but also because of government plans to unilaterally alter the conditions of the agreement governing its withdrawal from the European Union. EU officials have warned that the EU may suspend the entire agreement if the U.K. moves forward with Brexit, resulting in the immediate imposition of tariffs on U.K. goods entering the single market and tighter restrictions on U.K. businesses, including the financial sector, selling services into the EU..
