The UK saw the biggest increase in annual inflation on record last month, as global supply shortages and rising wages amplified the scale of price increases after pandemic-related discounts it a year ago
LONDON – The UK recorded the largest annual rise in inflation on record last month, as global supply shortages and rising wages amplified the scale of price increases after rebates linked to the pandemic a year ago.
Consumer price inflation accelerated to 3.2% in the 12 months to August, from 2% the month before, the Office for National Statistics said on Wednesday. Economists were forecasting an inflation rate of 2.9%.
The unexpected rise in prices may mean that inflation will peak at a higher level and remain elevated for a longer period than expected, according to economists at Berenberg Bank. This would increase pressure on the Bank of England to raise interest rates as it targets 2% inflation.
“As an uncertain winter approaches amid rising COVID-19 infections and worsening supply issues, the BoE may need to signal a faster pace of policy normalization ahead without scaring off markets that are probably already nervous, ”Berenberg said in a note to clients.
Jonathan Athow, deputy national statistician at the ONS, pointed out that much of the rise in inflation was the result of an expected rebound in prices which were depressed by the pandemic in the summer of 2020. In particular, the government’s Eat Out to Help Out program offered discounts on restaurant meals as authorities sought to bolster the economy after the first nationwide lockdown.
“August has seen the biggest rise in annual inflation month after month since the series launched almost a quarter of a century ago,” he said. “However, this will likely be temporary, as restaurant and cafe prices dropped significantly last year due to the Eat Out to Help Out program, while this year’s prices have increased.”