UK inflation soared to 9% in April, its highest level in over 40 years, driven by soaring energy bills, rising food prices, and increased transport costs. The Office for National Statistics reported that the 54% increase in the energy price cap in April, pushing the average annual gas and electricity bill close to £2,000, was the main factor behind the jump from 7% in March.
Average petrol prices reached a record 161.8p per litre in April 2022, up from 125.5p a year earlier, while diesel also hit a record high of 176.1p per litre. The end of a temporary VAT cut for the hospitality industry further pushed up prices, as restaurants and hotels passed on the tax increase from 12.5% to 20% to customers.
Food banks reported increased demand for food packages following the rise in energy bills, and many small business owners said higher costs and tax increases had pushed them to the brink of bankruptcy. The Resolution Foundation found that the poorest tenth of households faced an inflation rate of 10.2% in April, compared to 8.7% for the top 10% of earners, while the Institute for Fiscal Studies suggested the poorest households could face an inflation rate closer to 11%.
Business groups warned that all sectors were suffering from steep rises in energy and fuel costs, with many facing a financial shock similar to the pandemic but without the same level of government support. The British Chambers of Commerce called for an emergency mini-budget, with its head of economics Suren Thiru stating that the scale of inflation damaging consumer spending and business investment was unprecedented and could push the UK into recession by the third quarter of the year.
Bank of England policymakers are expected to raise interest rates for the fourth time since December to 1.25% in June, though opinions are divided on further increases if the economy contracts. Labour criticised Chancellor Rishi Sunak for refusing to tax fossil fuel companies to fund support for poorer households, while Conservative MPs voted against a windfall tax on North Sea oil and gas firms that could raise £3bn. Labour plans to table another amendment to pressure the government to hold an emergency budget.
Labour market figures showed average total wages increased by 7% in March, driven by bonuses in finance, IT, construction, and professional services, but average pay without bonuses rose only 4.2%, leaving many workers with a real-terms pay cut.
