While a post-pandemic burst of inflation has abated across much of the developed world, Britain is still stuck with the highest price growth among Group of Seven economies. The Bank of England has responded with the most rapid series of interest rate rises in a generation, worsening a cost-of-living crisis. Here’s how we got here, and whether there’s any relief in sight.
Inflation surged when economies emerged from the coronavirus pandemic as people spent money they’d saved during lockdowns, companies struggled to meet the resulting jump in demand and energy prices soared. In the UK, the Consumer Prices Index peaked at 11.1% in October and fell back to 8.7% in April — exceeding the expectations of economists and the Bank of England for a third consecutive month. The core rate of inflation, which excludes volatile energy and food prices, also accelerated unexpectedly and inflation expectations have been drifting well above the BOE’s 2% target. Inflation was running at 4.9% in the US and 7% in the euro zone in April.