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Daily Mirror
Daily Mirror
Business
Levi Winchester

Inflation hits 10.1% in new 40-year high as Bank of England warns of recession

UK inflation climbed to 10.1% in the 12 months to July as the cost of living crisis continues to squeeze household finances.

This is up from 9.4% in June - and means Consumer Prices Index (CPI) inflation is now five times higher than the Bank of England target of 2%.

Economists were expecting inflation to reach 9.8% in July - meaning the rise is worse than predicted.

The official figures - released by the Office for National Statistics (ONS) this morning - are the highest since February 1982 when inflation hit 10.2%.

Are you worried about rising inflation? Let us know: mirror.money.saving@mirror.co.uk

The biggest contributor to rising inflation for the July inflation rate was the cost food, according to the ONS.

Bread and cereals increased in price the most, followed by milk, cheese and eggs.

Vegetables, meat, sugar, jam, honey, syrup, chocolate and confectionary all rose in price as well.

ONS chief economist Grant Fitzner said: "Food prices rose notably, particularly bakery products, dairy, meat and vegetables, which was also reflected in higher takeaway prices.

"Price rises in other staple items, such as pet food, toilet rolls, toothbrushes and deodorants also pushed up inflation in July.

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

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

The latest figures come after the Bank of England warned inflation could hit 13.3% in October, when the energy price cap is expected to soar.

Bank of England economists expect the UK will plunge into a 15-month recession.

The economy is predicted to enter recession - defined as two quarters, or six months, of economic decline - in the last three months of this year and into 2023.

The Bank of England is trying to cool inflation by raising interest rates - earlier this month, the base was hiked by 0.5 percentage points to 1.75%.

It is the sixth time in a row that the central bank has hiked interest rates - and marks the largest increase in 27 years.

It also takes UK rates to the highest level since the end of 2008.

The theory behind raising interest rates, is that households will spend less and this should mean inflation will drop.

The base rate is what the central bank charges other banks and lenders - this in turn then influences the rates they charge customers.

It means, for example, you may pay more to borrow on products like mortgages depending on what type of deal you have.

What is inflation?

Inflation is a figure used to explain how much the prices of everyday essentials have increased.

When inflation is high, it means the cost of living has increased and you’re getting less for your money than you did before.

The ONS releases inflation figures for the previous 12 months every year - so it is a retrospective look at how prices have changed,

For example, if something cost £1 a year ago and now costs £1.02 today, that rate of inflation would be 2%.

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 £37billion 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.

"Getting inflation under control is my top priority, and we are taking action through strong, independent monetary policy, responsible tax and spending decisions, and reforms to boost productivity and growth."

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