UK households have been warned to brace for the sharpest annual rise in the cost of living since the early 1980s after a bigger-than-expected jump in the official inflation rate to 7% amid record increases in petrol prices.
Economists said they expected the government’s preferred measure for the annual increase in living costs – the consumer prices index (CPI) – was on course to breach 9% this month amid a record-breaking jump in energy bills and soaring cost of the weekly shop.
Highlighting the scale of Britain’s worsening cost of living emergency, the last time the CPI inflation rate was higher was February 1982 during the first Thatcher government, when it reached 10.4%.
The latest figures from the Office for National Statistics (ONS) showed inflation rose by more than expected in March to reach 7%, rising from 6.2% in February thanks to the soaring price of fuel, energy and groceries at the start of the year.
With broad-based price rises across the economy, the biggest increase came in the cost of filling up at the pump after Russia’s invasion of Ukraine sent the global oil price close to record levels amid concerns over supply disruption and sanctions.
Average petrol and diesel prices soared to record highs of 160.2p and 170.5p a litre respectively, rising by more than 30% over the past year – the biggest annual increase since 1989.
Restaurants and hotel prices also rose steeply in March, having been unavailable last year during lockdown, while there were also rises across a number of different types of food as the cost of a weekly shop increases.
The ONS said inflation was last higher in March 1992 when CPI stood at 7.1%. With inflation surpassing expectations among City economists for a reading of 6.7% on the month, experts said the measure for the rising cost of living was now likely to rise by more than expected in the coming months.
Economists at Goldman Sachs an Deutsche Bank said inflation would probably hit more than 9% in April, possibly as high as 9.2% thanks to surging energy bills and global supply chain disruption made worse by Covid and Russia’s war in Ukraine.
The Bank of England warned in early March that inflation was on track to reach 8% this month and could peak close to 10% later this year if the surge in global wholesale energy prices seen after the Russian invasion is sustained.
Threadneedle Street is likely to come under heavy pressure to raise interest rates when its monetary policy committee meets early next month, with the inflation rate now more than three times its 2% target set by the government.
According to the latest snapshot from the ONS, rising costs for gas and electricity bills added to pressure on household living costs in March. However, families are expected to face a bigger squeeze this month after a 54% rise in the Ofgem energy price cap at the start of April, to reflect an increase in wholesale markets, where oil and gas prices quadrupled in the past year even before Russia’s invasion of Ukraine.
“The latest rise in inflation will not be the last,” said Alpesh Paleja, the lead economist at the CBI business lobby group. “The result will be even higher costs for businesses, and a deep squeeze in the cost of living for households.”
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Official figures on Monday showed average pay growth failing to keep pace with the soaring cost of living. Jack Leslie, a senior economist at the Resolution Foundation, said the cost of living crisis was on track to be the biggest squeeze since the mid-1970s.
“The sheer scale of this inflation-led squeeze on living standards makes it all the more remarkable how little support the chancellor provided in his spring statement – a decision that will surely have to be revisited before the autumn budget.”
The chancellor, Rishi Sunak, blamed the rising costs on global pressures in supply chains and energy markets that could be made worse by Russian aggression in Ukraine.
“I know this is a worrying time for many families, which is why we are taking action to ease the burdens by providing support worth around £22bn in this financial year, including for the most vulnerable through our household support fund,” he said. “We’re also helping as many people as possible into work – the best way for families to gain economic security in the longer term.”