Inflation in the UK has been at an all-time high for almost 30 years, according to Reuters

By David Millik and Andy Bruce

LONDON (Reuters) – UK consumer price inflation rose more than expected in December to 5.4%, the highest level in nearly 30 years, official figures showed on Wednesday, prompting pressure from the Bank of England to raise interest rates again next month.

Economists surveyed by Reuters forecast that the annual CPI rate would rise to 5.2% in December from 5.1% in November.

The rise in the CPI from March 1992 onwards reflected many goods and services, the National Statistics Office said, with the biggest impact being on food and drink, followed by restaurants and hotels.

The economic disruption of the Omicron variant of the coronavirus in December had little effect on the rate of inflation, however.

The Bank of England became the world’s first central bank to raise interest rates since the COVID-19 pandemic began last month, one day after reaching its 10-year high in the November CPI.

Rising inflation is becoming a political issue for Prime Minister Boris Johnson’s government to offset the 50% increase in calls for opposition and charities this April.

“I understand the pressures that people face in the face of the cost of living, and we will continue to listen to people’s concerns,” Finance Minister Rishi Sunak said in response to the data.

The BoE forecasts that the CPI will reach a 30-year high in April, at around 6%, due to higher energy bills, and it will take more than two years for the CPI to return to its 2% target.

TO RAISE RATES AGAIN?

Financial markets see a strong opportunity for the BoE to raise rates again on February 3 and announce that it will reduce its stock of government bonds by £ 875 trillion ($ 1.19 trillion) as gilts begin to mature.

Kitty Ussher, chief economist at the Institute of Management, said the BoE expects its key interest rate to rise to 0.5% next month, and a particularly striking 4.2% year-on-year rise in food prices.

“This provides additional evidence that inflation is becoming more endemic than transient, which is also bad for families who are suffering from a sharp rise in the cost of living this spring,” he said.

Wednesday’s data showed that the core CPI – which sometimes excludes food, energy, alcohol and tobacco prices – stood at 4.2% in December from 3.9% in November.

Retail price inflation – the ONS says is an older measure that is no longer accurate, but is still widely used by governments and companies – rose to a 30-year high in December at 7.5% from 7.1% in November.

However, factory price data showed signs that cost pressures could peak, echoing business surveys last month. The prices charged by the factories were 9.3% higher than in December 2020, cooled from 9.4% in November and were the first drop in the annual rate since July 2020.

The inflation rate of costs paid by producers for materials and energy also fell in December, from 15.2% to 13.5%.

($ 1 = £ 0.7352)