British inflation surged to a new 40-year high in July on soaring food prices, official data showed Wednesday, adding to a cost-of-living crisis as the country faces the prospect of recession.

The Consumer Prices Index (CPI) accelerated to 10.1 percent last month from 9.4 percent in June — itself a four-decade high — the Office for National Statistics said.

The Bank of England warned earlier this month that UK inflation would climb to just above 13 percent this year, which would be the highest level since 1980.

It also projected that the country would enter a recession near the end of the year that the BoE expects to last until late 2023.

Official data last week showed Britain’s economy shrank in the second quarter.

“I understand that times are tough, and people are worried about increases in prices that countries around the world are facing,” finance minister Nadhim Zahawi said following the latest data.

“Getting inflation under control is my top priority,” he said, as Britons face also rocketing energy bills.

While the government of outgoing Prime Minister Boris Johnson has pledged to help reduce fuel costs for millions of Britons this coming winter, consumer groups are demanding far more state support.

It comes as Britain endures a cost-of-living crisis, with wage values falling at a record pace.

The deteriorating economy will be inherited by Johnson’s successor after he leaves office next month, with Foreign Secretary Liz Truss and former finance minister Rishi Sunak vying to take the reins of the Conservatives.

– Rate hikes –

In a bid to bring down inflation, the Bank of England has hiked its key interest rate several times since the end of last year.

The most recent increase was by 0.5 percentage points, the biggest hike since 1995 and which leaves borrowing costs at 1.75 percent — driving up mortgage repayments for households but boosting savers.

“Today’s data leaves the Bank of England stuck in a bit of a quandary, with multi-decade high inflation accompanied by an economy expected to enter into a deep recession in 2023,” noted Matthew Ryan, head of market strategy at global financial services firm Ebury.

He added that “another 50 basis-point interest rate hike is effectively guaranteed at the bank’s next meeting in September”.

The BoE’s recent moves mirror aggressive monetary policy from the US Federal Reserve and the European Central Bank, as the world races to cool red-hot inflation that has been fuelled by Russia’s invasion of Ukraine.

– Bread, cereal, toilet paper –

The UK statistics office said the “largest movements” in July’s CPI came from food.

Bread and cereals were the largest contributors to the jump in food prices, followed by milk, cheese and eggs.

The increases were reflected in higher prices for takeaway food, said ONS chief economist Grant Fitzner.

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

Package holiday costs and air fares also increased on higher demand, Fitzner said, while the cost of raw materials and good leaving factories continued to rise.

“The eye-watering increase in the price of food in July will be dismal reading for many families already struggling to pay for their supermarket shop,” said Laura Suter, head of personal finance at AJ Bell.

“Food inflation reached 12.7 percent in July, having seen the highest monthly growth in more than 20 years.”

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European stocks drop, oil steadies

European stock markets fell Wednesday as official data showed UK inflation surging to a new 40-year high.

Investors remain on edge as central banks hike interest rates to fight runaway inflation, but which threatens to tip economies into recession.

Oil prices steadied after recent heavy falls caused by forecasts of weaker demand on slowing economic growth, while the possibility of an Iran nuclear deal that would boost supplies.

In foreign exchange, the pound firmed against the dollar as official data showed UK inflation soaring above ten percent.

That increased expectations of a further sharp rise to the Bank of England’s main interest rate, according to economists.

“Markets reacted negatively to the (inflation) news with the (London) FTSE and other European indices falling,” noted City Index analyst Fawad Razaqzada.

Shares in heavily-indebted cinema chain Cineworld plunged 50 percent to 10.5 pence in London after the group warned over weaker-than-expected ticket sales.

Hit hard by pandemic lockdowns in Britain and the United States, Cineworld said it was further impacted since reopenings by a “limited” number of film releases.

Traders were meanwhile awaiting minutes from the Fed’s July meeting due later Wednesday for insight into the size of the US central bank’s next rate hike.

“We expect the… minutes to have a hawkish tilt,” said Carol Kong at Commonwealth Bank of Australia.

“We would not be surprised if the minutes show (officials) considered a 100 basis points increase in July.”

The bank lifted rates by 75 points in both June and July.

While the Federal Reserve and its peers are expected to keep tightening monetary policy for the rest of the year, talk is building that they will be able to ease up in 2023 should inflation cool as expected by markets.

In Asia on Wednesday, major stock markets gained following a positive lead from Wall Street and hopes of Chinese stimulus.

China’s central bank on Monday announced a surprise interest rate cut, preceding a report that said Premier Li Keqiang called on six key provinces — accounting for about 40 percent of the economy — to bolster pro-growth policies.

Chinese tech giant Tencent on Wednesday posted its first drop in quarterly revenue since going public, as the company grapples with China’s economic downturn, pandemic disruptions and ongoing scrutiny from regulators.

– Key figures at around 1100 GMT –

London – FTSE 100: DOWN 0.4 percent at 7,503.60 points

Frankfurt – DAX: DOWN 0.9 percent at 13,779.22

Paris – CAC 40: DOWN 0.4 percent at 6,563.41

EURO STOXX 50: DOWN 0.5 percent at 3,785.27

Tokyo – Nikkei 225: UP 1.2 percent at 29,222.77 (close)

Hong Kong – Hang Seng Index: UP 0.5 percent at 19,922.45 (close)

Shanghai – Composite: UP 0.5 percent at 3,292.53 (close)

New York – Dow: UP 0.7 percent at 34,152.01 (close)

Euro/dollar: UP at $1.0173 from $1.0166 Tuesday

Pound/dollar: UP at $1.2100 from $1.2092

Euro/pound: UP at 84.10 pence from 84.04 pence

Dollar/yen: UP at 134.89 yen from 134.21 yen

West Texas Intermediate: DOWN 0.1 percent at $86.45 per barrel

Brent North Sea crude: DOWN 0.1 percent at $92.28 per barrel

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