What is the UK’s inflation rate?
UK inflation has risen to 7% – the highest rate it has been for 30 years.
Surges in the price of fuel, energy and food are putting increasing pressure on household budgets.
Why has inflation risen so much?
- Fuel costs are the biggest contributor – average petrol prices rose by 12.6p per litre between February and March, the largest monthly rise since records began in 1990
- Household fuel bills have soared – from 1 April, about 18 million households on standard tariffs saw their annual bill jump from £1,277 to £1,971 – an average increase of £693
- The rate of VAT – the tax paid when buying goods and services – is going up for some businesses; during the pandemic, the government reduced this for hospitality and tourism firms to support them, but since 1 April, this has returned to the standard 20% rate
- Air passenger duty and vehicle excise duty rates are also increasing, as is the cost of postage, and water bills in England and Wales.
- Regulated rail fares have gone up by up to 3.8% in England and Wales, the highest fare rises for nine years
- Higher interest rates are also making mortgage payments more expensive for some homeowners
The headline inflation rate is an average, and price rises in different areas rise at different rates. One food industry boss has warned that food prices could rise by up to 15% this year.
What is the UK’s inflation rate and how high could it go?
Inflation is a measure of the rate at which prices are rising over a given period of time.
In the UK, this is worked out by the Office for National Statistics (ONS), which notes the prices of hundreds of everyday items, known as the “basket of goods”.
This is constantly updated. In 2022, items such as tinned beans and sports bras were added, reflecting a rising interest in plant-based diets and exercise.
The ONS releases its inflation figures each month, showing how much these prices have risen since the same date last year. This is known as the Consumer Prices Index (CPI).
Inflation rose by 7% in the 12 months to March, up from 6.2% in February. This means prices are now going up at their fastest rate for 30 years.
Will inflation keep rising?
The Office of Budget Responsibility (OBR) has suggested that the war in Ukraine could push inflation to a 40-year high of 8.7% in the final three months of 2022 and have “major repercussions for the global economy”, and push energy, petrol and food costs even higher.
The Bank of England has also warned that inflation could hit double digits if the energy price cap goes up again in October.
What’s happening to wages?
Average pay increases aren’t keeping pace with inflation.
Figures from the ONS show that wages rose by 3.8% between November and January. But when you take inflation into account, regular pay actually fell by 1% compared to 12 months ago.
Some parts of the economy facing staff shortages as a result of Brexit and the pandemic have increased staff pay.
On 1 April, the lowest-paid saw the National Living Wage rise by 6.6% to £9.50 an hour, which is higher than the current inflation rate.
However, since that date, anyone earning more than £9,880 per year (£12,570 from July) has has to pay 1.25p more in the pound in National Insurance contributions under the Health and Social Care Levy .
What can be done to tackle inflation?
The Bank of England’s traditional response to rising inflation is to raise interest rates. It has done this three times in the past few months.
This can benefit savers, but means some people with mortgages see their monthly payments go up.
The idea is that when borrowing is more expensive, people will have less money to spend. As a result, they will buy fewer things and prices will stop rising as fast.
But when inflation is caused by external forces, such as the global squeeze on energy prices, then this might not be the answer.
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