Inflation soars to double figures in biggest jump in 40 years amid cost of living crisis

We all know our money isn't going as far as it used to, as inflation hit a new 40-year high of 10.1% - Carl Dinnen reports

UK inflation has soared to another 40-year high as the cost of living squeeze grips millions of households across the country.

The rate of Consumer Prices Index (CPI) inflation rose to 10.1% in July, up from 9.4% in June, the Office for National Statistics (ONS) said.

It means inflation in Britain remains at the highest level since February 1982.

The latest rise heaps further strain on cash-strapped households and businesses facing soaring energy bills, and squeezes workers' spending power as wages fail to keep up with inflation.

The massive jump in inflation comes after ONS figures released on Tuesday revealed workers had been hit by the biggest pay slump since records began, as they saw a 3% drop in regular pay terms when when inflation was taken into account.

Energy, food and fuel prices have all also rocketed - in part due to Russia's invasion of Ukraine.

As inflation rockets to just over 10%, Labour Keir Starmer has accused the government of 'losing control of the economy' and doing 'nothing' to curb soaring prices.

ONS chief economist Grant Fitzner said: “A wide range of price rises drove inflation up again this month.

“Food prices rose notably, particularly bakery products, dairy, meat and vegetables, which was also reflected in higher takeaway prices.

He added price rises in other staple items including pet food, toilet rolls, toothbrushes and deodorants had also pushed inflation up.

“Driven by higher demand, the price for package holidays rose, after falling at the same time last year, while air fares also increased," Mr Fitzner said.

"The cost of both raw materials and goods leaving factories continued to rise, driven by the price of metals and food respectively," he added.

What is inflation?

Inflation is measured by the ONS which checks the prices of a range of more than 700 everyday items, called a "basket" of goods and services.

The basket is regularly updated to reflect the population's general buying preferences and includes everyday items such as a loaf of bread and a bus ticket, to larger purchases like a car and a holiday.

Record fuel prices are one of the driving forces behind the squeeze. Credit: PA

The price of that "basket" informs us of the overall price level - this is known as the Consumer Prices Index (CPI).

To calculate the rate of inflation, analysts compare the level of CPI (the cost of the basket) with what it was in the same month a year ago. The change in the price level over the year is the rate of inflation.

Rising costs have filtered through to production of the everyday food staples on which we depend - Chris Choi speaks to those struggling to keep up with prices

Pressure grows as energy bills soar

Households will be feeling the pinch in their pay packets even more as they brace for their energy bills to soar higher as the energy price cap rises.

Energy consultancy Auxilione has warned average households could be facing an annual energy bill of £4,650 from January and £5,456 from April, unless gas prices come down.

Labour called on Monday for the price cap to be frozen at its current level of £1,971 until April to help struggling families through an otherwise disastrous winter.

It is the latest pressure to be put on the government to add to its £400 help for households with bills that will be paid in six instalments starting in October.

Inflation is expected to fall back a little in August, but according to estimates it could soar to 13.3% in October when the energy price cap rises again. The Bank of England thinks this could push the UK into a recession.

The UK's economy has already contracted in the last three months, ONS figures show, with gross domestic product (GDP) falling by 0.1% in the three months to the end of June.

This was a big step down from the first quarter of the year, when GDP rose by 0.8%.

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ONS director of economic statistics Darren Morgan said health was the biggest reason for the shrinking economy, as the test and trace and vaccine programmes were wound down, adding many retailers had also experienced a tough quarter.

Responding to the rise in inflation on Wednesday, Chancellor Nadhim Zahawi said: “I understand that times are tough, and people are worried about increases in prices that countries around the world are facing.

“Although there are no easy solutions, we are helping where we can through a £37 billion support package, with further payments for those on the lowest incomes, pensioners and the disabled, and £400 off energy bills for everyone in the coming months."

Labour's Shadow Chancellor Rachel Reeves said: “We must get a grip on rising inflation leaving families worried sick about making ends meet.

"People are worried sick while the Tories are busy fighting and ignoring the scale of this crisis. Only Labour can give Britain the fresh start it needs.”

It was also announced on Wednesday that the inflation figure that is usually used to determine annual increases in some train fares had risen to its highest in nearly four decades.

The ONS data showed July's Retail Prices Index (RPI) inflation, which is an older way of measuring the cost of living, was 12.3%, up from 11.8% the previous month and the highest since January 1982.

Credit: PA

July’s RPI figure is traditionally used by the UK, Scottish and Welsh Governments to set the cap on the following year’s increase in regulated train fares, which include most season tickets on commuter routes.

But the Department for Transport announced on Monday that the 2023 increase in regulated fares in England will be below the inflation measurement.

Paul Tuohy, chief executive of Campaign for Better Transport, said that even a train fare rise that was less than RPI inflation "will hit passengers hard and could mean people stay away from the trains altogether."

“The government must go further and commit to a fare freeze for 2023 now so that commuters are not left with the uncertainly of whether they’ll be able to afford to get to work next year," he added.

If you are concerned by rising costs, Family Fund is the UK’s largest grant-making charity for families raising disabled, or seriously ill children and young people, providing essential items including kitchen appliances, clothing, bedding, play equipment and family breaks