By Geoffrey Smith
Investing.com -- Inflation in the U.K. leaped to 9% in April, its highest level since 1982, as a thumping rise in regulated household energy bills took effect.
The consumer price index rose 2.5% on the month, the biggest monthly increase since 1991, as the cap on household electricity and gas prices was adjusted to reflect the sharp rise in wholesale prices caused by Russia's invasion of Ukraine. That aggravated an already sharp imbalance between supply and demand.
The regulator Ofgem estimates that annual bills for many households will rise by nearly 700 pounds ($870) a year as a result of the adjustment, even before a further rise in October comes into effect.
In addition, a temporary cut in Value Added Tax (VAT) on many items, made during the pandemic, was also reversed. As a result, the VAT charged by sectors such as catering and accommodation has now returned to 20% from as low as 5% over the last two years.
Core inflation , which strips out volatile food and energy prices, also rose strongly, by 0.7%, as a reopening economy quickly ran into bottlenecks caused partly by supply chain problems stemming from the pandemic and partly by a skills shortage caused by the loss of European Union workers from the workforce.
There was also evidence of plenty more inflation in the pipeline, with producer input prices rising another 1.1% after a 4.6% rise in March, while factory gate prices rose 2.3% on the month, taking the annual increase to 14%.
Although big, the increases in most of the U.K. price indices weren't as bad as had been expected. As such, they had only a marginal immediate impact on the pound. By 3:40 AM ET (0740 GMT), sterling had even fallen back against the dollar to $1.2440, and had also lost 0.1% against the euro to $1.1888.
The pound has come under heavy pressure in recent days, not only from the inflation front but also from government plans to unilaterally change some of the terms of the agreement governing its exit from the European Union. EU officials have warned that it may suspend the whole agreement if the U.K. goes ahead, leading to the immediate imposition of tariffs on U.K. goods entering the single market and tighter restrictions on U.K. businesses - including the financial sector - selling services into the EU.
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.