Inflation is now at a 40-year high, according to the Office for National Statistics (ONS), after jumping from 9.1 per cent in May, and exceeds the 9.3 per cent consensus forecast.
The ONS said rising prices for motor fuels and food resulted in the largest upward contributions to the monthly rates in June 2022.
Within transport, there was a 42.3 per cent rise in the price of motor fuels – the highest rate since ONS records began in January 1989.
Average petrol prices stood at 184p per litre in June 2022, compared with 129.7ppl a year earlier. Meanwhile the average price of diesel in June 2022, which was 192.4 pence per litre, was also the highest recorded.
However, the category rise was partly offset by a 2.5 per cent fall in the cost of second-hand cars.
Separately, food prices rose 9.8 per cent in the year to June 2022, up from 8.7 per cent in May. This is the highest rate since March 2009, and the ONS said the largest upward effect came from milk, cheese and eggs, compared with price falls a year ago. Vegetables, meat and ready meals also saw price hikes.
And turning to restaurants and accommodation, prices rose 8.6 per cent in the year to June, up from 7.6 per cent in May. This was the highest since the 8.6 per cent recorded in August 2021, which was influenced by the previous year’s Eat Out to Help Out scheme.
Further, the price of clothing and footwear eased as the figure came in at 6.1 per cent, down from 6.9 per cent in May. The ONS said prices normally fall at this time of year as the summer sale season begins, “but there was little movement in 2022, and in 2021, prices were still rising following the end of the coronavirus lockdown”.
More rate hikes to come from Bank of England
The Bank of England can try to tackle inflation by raising interest rates. As a result, the latest figures are creating expectations of some bold moves by monetary policymakers. In turn, this will drive up mortgage costs.
Ed Monk, associate director, personal investing at Fidelity International, said: “The Bank of England has been left playing catch up and, despite tightening interest rates aggressively this year, may have to increase borrowing costs yet further and faster in order to prevent a more widespread inflationary spiral.”
Laura Suter, head of personal finance at AJ Bell, added: “Another larger-than-expected increase in inflation is turning up the heat on the UK’s economy – and on the spending power of the nation.
“It could also be the signal for the Bank of England to hike rates by 0.5 per cent next month, less than 24 hours after the governor, Andrew Bailey, said he was prepared to take stronger action.”
Adrian Lowery, financial analyst at investing platform Bestinvest, said markets are expecting a big jump in rates next month
“Interest rates could rise sharply next month.
“Bank governor Andrew Bailey yesterday repeated that a half-point increase in the bank rate, which would be the first since the Bank gained operational independence in 1997, is an option for August’s announcement from the monetary policy committee.
“That comes after five consecutive 25 basis point rate hikes as the MPC has targeted rising inflation in recent months…
“Financial markets are pricing in a 94 per cent chance that the MPC will raise the benchmark rate to 1.75 per cent from 1.25 per cent.
“Expectations in money markets for rates in a year’s time have recent varied vary between 3.0 per cent and 3.5 per cent. Much will depend on the health of the real economy.”
The Bank of England’s Monetary Policy Committee forecast inflation to breach 11 per cent in October. Meanwhile, average energy bills are set to hit £3,363 in the New Year, heaping more pressure on household finances.
