Inflation accelerates to 30-year peak in UK

British annual inflation accelerated in December to its highest level in almost three decades, official data showed on Wednesday, fueled by price gains for clothing, food and furniture.

The annual rate jumped to 5.4 percent last month after 5.1 percent in November, the Office for National Statistics said in a statement.

Inflation was last higher in March 1992 when it had stood at 7.1 percent.

The high rate was down to supply chain disruption caused by the pandemic as well as much higher energy prices and strong consumer demand for most goods and services after people emerged from lockdowns and other pandemic related restrictions.

Yael Selfin, chief economist at KPMG UK, told the Financial Times most economists believe inflation will keep going up until it peaks in April.

She said that likely means the Bank of England, which is the UK's central bank, will need to increase its key interest rate several times this year and "shift toward a significantly tighter monetary policy stance".

Interest rates

The Bank of England's monetary policy committee will next meet on Feb 3 to discuss its interest rates.

The committee edged its key rate up by 15 basis points to 0.25 percent in December to address November's high rate of inflation. The hike was the first in more than three years.

Paul Dales, chief UK economist at Capital Economics, told the Financial Times he expects inflation to hit almost 7 percent in April, partly as a result of the UK's energy regulator Ofgem increasing its default energy tariff price cap, which will greatly increase fuel bills.

The Bank of England has set itself a target of limiting inflation to 2 percent, so it will not want to see that 7 percent rate.

The BBC reported on Tuesday that wages have not been keeping up with the fast-rising inflation rate and rapidly increasing prices on the high street.

"Salaries are growing reasonably strongly, but some people are saying they are not feeling much better due to rising prices," an unnamed spokesperson for the Office for National Statistics was quoted by the BBC as saying.

Official ONS data showed salaries effectively fell by 1 percent during November, when adjusted for inflation.

However, Sky News reported there will be a silver lining for the UK's workforce in the longer term, with vacancies currently at a record high of 1.24 million and employers starting to compete for quality employees.

Agencies contributed to this story.