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UK inflation hits 30-year high of 7% as cost of living crisis deepens

·Finance Reporter, Yahoo Finance UK
·5-min read
Inflation A person shops for vegetables at a supermarket in Manhattan, New York City, U.S., March 28, 2022. REUTERS/Andrew Kelly
Food prices are driving up inflation. Photo:Andrew Kelly/Reuters

Prices are rising at their fastest rate for 30 years, driven by increased fuel prices and energy bills.

Inflation rose by 7% in the 12 months to March, the highest rate since 1992 and up from 6.2% in February, according to the Office of National Statistics (ONS).

Read more: UK petrol prices 58% more expensive than global average, study says

Inflation remains at its highest point since March 1992, when it stood at 7.1%. But it is expected to rise again in April, possibly over 8%, due to the 54% increase in the energy cap.

Inflation is at a 30-year high. Chart: PA Graphics
Inflation is at a 30-year high. Chart: PA Graphics

The jump in motor fuel prices to record highs drove inflation. Average petrol prices were 160.2p per litre in March 2022, compared with 123.7p per litre a year earlier.

Diesel also hit a record in March, at 170.5p per litre, after Russia’s invasion of Ukraine lifted oil prices.

ONS chief economist Grant Fitzner said: "Broad-based price rises saw annual inflation increase sharply again in March.

"Amongst the largest increases were petrol costs, with prices mostly collected before the recent cut in fuel duty, and furniture.

"Restaurants and hotel prices also rose steeply in March while, after falling a year ago, there were rises across a number of different types of food.

"The price of goods leaving UK factories has continued to rise substantially with metal and transport products both at record highs and food reaching its highest rate for over a decade. Raw material costs also rose, with a notable increase in the price of crude oil."

Gas prices were 28.3% higher in March than a year ago, while electricity was 19.2% higher. That does not include the latest increase in the price cap.

Prices at restaurants and hotels jumped 2% between February and March 2022, the largest monthly change since the ONS data started in 1988.

This chart highlights how prices have been surging. Chart: ONS
This chart highlights how prices have been surging. Chart: ONS

Read more: Majority of UK consumers see rise in cost of weekly grocery shop

The price of bread increased by 2.3% in March, and is now 5.5% more expensive than it was a year ago.

The price of lamb rose by 1.7% in the month before families sit down for an Easter meal. Lamb that is eaten across the country this weekend will cost around 16% more than last Easter.

Chancellor Rishi Sunak said: "I know this is a worrying time for many families, which is why we are taking action to ease the burdens by providing support worth around £22bn in this financial year, including for the most vulnerable through our Household Support fund.

"We're also helping as many people as possible into work – the best way for families to gain economic security in the longer term."

The retail price index – which is used to calculate pension payments and train ticket prices – also hit a 31-year high of 9%.

The figures come a day after jobs data showed wage growth is failing to keep pace with inflation, meaning households have been hit by the biggest fall in living standards for eight years.

Danni Hewson, AJ Bell financial analyst, commented: “There’s no way to sugar coat what’s happening to prices. Pretty much everything is significantly more expensive than it was a year ago and there is every indication the situation is just going to get worse.

“I don’t think anyone will be surprised to learn that the price at the pump played a huge part in the March story, petrol prices were up by more than 12p a litre in a single month, diesel by more than 18p. Motorists winced every time they had to fill up their vehicles and the chancellor’s duty cut has done little to soothe."

Private rental prices in the UK increased by 2.4% in the 12 months to March 2022, which is the largest annual growth rate since July 2016.

Panmure Gordon chief economist Simon French said there was nothing in the release to change his view that the consumer price index will peak this year at around 10%.

He said: “Signs of a broadening of inflationary pressures amongst core items and a big leap in input costs. All ahead of the more acute April energy squeeze.”

He added that a half percentage point hike in interest rates at the May meeting of the Bank of England’s monetary policy committee was “no longer a long shot”.

Adrian Lowery, personal finance expert at investing platform Bestinvest, said the inflation figures add pressure on the Bank of England.

He said: "Nevertheless, if inflation readings continue to overshoot expectations, the pressure will only grow on the Bank of England to give more consideration to the medium-term path of inflation, over the possible drags on the real economy caused by higher rates.

"The danger is that as inflation expectations rise, so do wage demands and bargaining power, and that could entrench what is hoped to be a short-to-medium term spike in inflation into a medium-to-long term problem. While the monetary policy committee has the flexibility to bring inflation gradually back down to target in a year or two’s time – the central projection for 2% was forecast to be met the end of 2023 in the MPC’s February report - it’s questionable how such projections can be viewed with any confidence given the febrile economic conditions."

The Bank of England has hiked interest rates at three consecutive monetary policy meetings, raising the costs of borrowing from its historic low of 0.1% to 0.75%, as it looks to contain runaway inflation without stomping out economic growth.

Watch: How does inflation affect interest rates?