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UK inflation dropped for the first time in approximately a year, even as households continue to feel the brunt of high gas prices.
The UK is experiencing relief as inflation drops to a 9.9% annual rate for the first time since September 2021. Although this development offers some respite to struggling households in the country, it is still close to a 40-year high.
The inflation rate was 10.1% in July but eased over the months following a monthly price decline in petrol and diesel. Meanwhile, in the same ensuing period, the prices of food and clothing soared. According to a statement by the Office for National Statistics regarding the price dynamic between food and petrol between July and August, “food and non-alcoholic beverages made the largest upward contribution to the monthly rates in August 2022, while falling prices for motor fuels resulted in a large offsetting downward contribution.”
UK Inflation Drops Lower than General Expectations, Still Remains a Threat to Spending
The 9.9% drop in the annual rate of consumer price growth came in below the 10.2% economists expected. However, these economists remain adamant that inflation will rise later this year, even as the Sterling weakened on the news. Furthermore, economists and market observers also predict that the Bank of England would still have to hike rates next week. The apex British banking institution had postponed making a decision this week following the death of long-reigning monarch Queen Elizabeth.
Commenting on the Bank of England’s approach to threatening inflation, Paul Dales, chief UK economist at consultants Capital Economics, stated that “overall and core UK CPI inflation haven’t peaked yet. As such, the Bank of England will have to continue turning the screws.”
Natural gas prices have surged across Europe following the onset of Russia’s war with Ukraine. Furthermore, military warfare is impacting the UK and other countries that import very little of the product. Britain is still heavily contending with the highest inflation among globally developed nations – including France, Germany, and the US. However, some EU nations, including the Netherlands and Spain, have even higher inflation rates than the UK.
EU Maps Out Strategy to Curtail Soaring Gas Prices
To halt the escalating crisis, the European Union seeks to raise €140 billion, or £121 billion, by capping revenues for non-gas energy suppliers. According to Ursula von der Leyen, European Commission President, these funds would come from the capped revenues of low-cost power producers, including renewables. Speaking before politicians in Brussels, von der Leyen also stated:
“In these times it is wrong to receive extraordinary record revenues and profits benefiting from war and on the back of our consumers. In these times, profits must be shared and channeled to those who need it most.”
Furthermore, von der Leyen explained that the union seeks to establish a “more representative benchmark” for gas. Furthermore, the supranational political, economic and monetary union is also working on “decoupling” power and gas prices.