U.K. Inflation Hits 9% in April; Highest Since 1982

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U.K. Inflation Hits 9% in April; Highest Since 1982
Credit: © Reuters.

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.

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