UK annual inflation hit 5.4% in December. This was higher than expected by economists, who had forecast 5.2%.
The ONS said that the rise in prices was broad-based, across the economy in food, haulage, energy. It’s the highest such figure in 30 years.
As Ed Conway, Sky New economics editor, noted: what’s particularly worrying is that this comes just before the worst of the energy rises impacts on consumers and industry with even higher bills about to land. Might inflation top 6 or 7%?
The Bank of England missed this inflation, arguing in the summer it was a transitory development. The Bank has merrily carried on printing money. Now its monetary policy committee (the MPC) has to work out how soon to increase interest rates again, to tackle price rises. They announce a decision in the first week of February. There may be several swift hikes ahead.
The rise in prices means there is about to be an almighty squeeze on disposable income, sharply reducing consumer leeway for discretionary spending. That’s bad for all sorts of businesses. Consumers will have less to spend. Conway has crunched the numbers and it’s potentially eye-watering. Households are about to feel the combined pain of rising prices, big energy bills and tax rises introduced by the Chancellor.
This is the context of the government’s current travails, whether it’s Boris Johnson still in office or a successor.
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Voters are unhappy now about parties in Number 10. How discontented will they become when they feel considerably poorer?