UK inflation at new 40-year high worsens living standards crisis

UK inflation hit a new 40-year high in June, intensifying the cost of living crisis and heaping pressure on the Bank of England to deliver an aggressive interest-rate increase next month.

Consumer prices rose 9.4 per cent from a year earlier, the biggest increase since February 1982, the Office for National Statistics said Wednesday. The acceleration from 9.1 per cent in May was driven by a 9.3 per cent surge in the price of motor fuel over the month.

Prices are now rising far more quickly than wages . The pain for households is set to get worse, with inflation forecast to top 11 per cent in October when another energy price-hike kicks in. On Tuesday, unions representing public-sector workers threatened further strikes after the government offered pay increases that amounted to a significant cut in real terms.

BOE policy makers meanwhile are worried that elevated inflation could become entrenched if rising wage and raw-material costs force companies to keep hiking prices.

In his annual Mansion House speech in London last night, BOE Governor Andrew Bailey floated the possibility of a half-point rate increase in August as the central bank steps up its battle to bring inflation back to the 2 per cent target. If delivered, it would mark the first half-point increase since the BOE gained independence in 1997.

Officials have increased the benchmark rate five times since December to 1.25%, and money markets are pricing in 3% by the end of the year.

In other news, temperature in the UK rose above 40 degrees celsius for the first time as a potentially deadly heat wave disrupts travel, business and schools in the country.