Inflation rising fastest since 1997, fueling fears the Bank of England will be forced to raise interest rates
The cost of living rose by the largest amount ever last month as pandemic chaos sent prices soaring.
Inflation rose from 2 percent in July to 3.2 percent in August, according to the Office for National Statistics (ONS) – the biggest spike since 1997.
It will fuel fears that things could spiral out of control and put pressure on the Bank of England to raise interest rates.
Rising prices: Inflation rose from 2 percent in July to 3.2 percent in August, according to the Office for National Statistics
The Bank cut interest rates to an all-time low of 0.1 percent last year to encourage spending, injecting cash into the economy through a £895 billion money-printing program.
But the ONS urged caution in interpreting the reading, pointing out that it is calculated by comparing current prices with those of an unusual period a year ago.
In August 2020 it was much cheaper to eat out for lunch and dinner as the Eat Out to Help Out scheme cut restaurant bills in half.
Sarah Coles, an analyst at Hargreaves Lansdown, said: “It’s been really boosted by the plan, which will disappear from the numbers next month.”
The ONS said the prices of food, furniture and household appliances, and recreation and cultural activities had also risen.
Inflation is likely to rise further due to an increase in the energy ceiling and the end of the VAT reduction for hospitality businesses.
The Bank expects the rising inflation to be temporary. Thomas Pugh, of accountant RSM, said: ‘The way back from inflation must be just as fast.’
Due to temporary factors, the Bank is not expected to start raising interest rates until next year.