The consumer price inflation in the UK reached 2.6% in 2021 and, according to GlobalData, it is estimated to reach 7.2% in 2022. On a monthly basis, the Consumer Price Index (CPI) rose 0.7% in May 2022 in comparison to an increase of 0.6% in May 2021. The inflation increased significantly due to increase in the prices of fuels, food, and non-alcoholic beverages in comparison to that in the earlier years. The increase in the prices led to the highest increase in the consumer price inflation household rates and the CPI 12-month inflation rates during April–May 2022.
The increase in CPI increased pressure on Bank of England to increase interest rates more quickly despite a clear downturn in the UK economy in recent months. This led to a decline in consumer confidence and a wave of profit downgrades by domestic companies that serve consumers.
The bank rate, commonly known as the “Bank of England base rate” or “the interest rate,” is the most significant indicator of the interest rate in the UK. Consumer spending habits are influenced by changes in the bank rate, which could aggravate inflation and lead to increase in prices. The two primary reasons why the cost of living increased significantly in the past year were the higher prices of goods coming from abroad and huge increase in the cost of energy. Accordingly, the Bank of England increased the interest rate, bank rate, from 0.1% to 1.25% since December 2021, which will likely help reduce inflation by making borrowing more expensive and encouraging savings.
Access the monthly tracker here: United Kingdom: Inflation, Interest Rate, and Unemployment Rate Monthly Tracker (2019 - YTD)
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