The consumer prices index (CPI), the main measure of UK inflation, has hit double digits - 10.1% - for the first time since 1982.
The latest Office for National Statistics figures showed that bread, cereals, milk, cheese and eggs contributed most to the UK having the highest inflation rate among the G7 countries and the eurozone.
Core inflation, which excludes energy and food prices, also rose by 6.2% and factory gate prices rose by 17.1% in the year to July, up from 16.4%; the highest rate since 1977.
This latest inflation figures, which triggered a rapid sale of UK government bonds, suggests that the Bank of England will need to continue raising interest rates, perhaps more steeply than first thought, to counteract rising inflation which, in turn, could trigger a recession later this year.
Rising inflation and interest rates continue to fuel the cost of living crisis that is driven, in large part, by Russia’s invasion of Ukraine and global supply-chain problems that arose because of the pandemic, making fuel and food more expensive, while the real value of pay has fallen by 3% since last year and as-yet-unquantified energy price rises loom.
ONS chief economist Grant Fitzner said: “A wide range of price rises drove inflation up again this month.
“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,“ he continued, adding: “The cost of both raw materials and goods leaving factories continued to rise, driven by the price of metals and food respectively.”
The Bank of England expects the rate of inflation to rise to more than 13% in the final quarter of this year and stay high throughout most of 2023.
Rod Cross, professor emeritus in economics at the University of Strathclyde, said: “The crucial dog not yet to bark is the lack of a rationale for the 2% inflation target.
“What is required now are spiked cost of living settlements, geared to average peak inflation of, say, 10% and a trough of 5%, with a claw back or forth in future pay settlements to reflect discrepancies between the expected peak-trough averages and actual inflation which will assure people that they are not losing out in inflation.”
The mechanics by which the Bank of England's 2% target, established in 1997, could be reached from today’s high inflation rate are unclear. Cross said that perhaps it is time to consider the 4% target advanced by the IMF reflecting the severity and magnitude of the economic shocks that have impacted the economy since 1997.
Fraser Sime, regional director for Scotland at Bank of Scotland Commercial, said: “It’s certainly a challenging time for businesses and recent forecasts from the Bank of England are unlikely to have come as a surprise to most of the country’s businesses.
“Our latest data revealed that business confidence across Scotland fell 11 points, but remained in positive territory at 16%, indicating that firms are staying strong in the face of these challenges.”
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 £37bn 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.”
SNP Shadow Chancellor Alison Thewliss responded: "It's utterly shameful that the Tory government is nowhere to be seen while families are worried sick about rising bills and inflation soaring to levels not seen since Margaret Thatcher."
Business, Trade, Tourism and Enterprise Minister Ivan McKee said that the Scottish Government was looking at a number of measures to tackle the rising cost-of-living.
“There are measures we are looking at, I’m not going to obviously commit just now to government policy.
“We have got to go through the proper process on that, but we are absolutely having a look at all measures that could make an impact to address the current situation,” he told the BBC’s Good Morning Scotland.
He added that it was “very important also to recognise what we have done”, including the “£3bn we have already put in”, but highlighted that some issues were reserved for the UK Government.
However, the Scottish Liberal Democrats have called for McKee to apologise after claiming that the Scottish Government had provided £3bn in cost-of-living support.
At the end of July, the independent Scottish Parliament Information Centre (SPICe) criticised the government for including a host of measures which long pre-date the current crisis in a list of actions it was taking to tackle the present cost-of-living crisis.
The SPICe briefing note stated that “a list of measures announced specifically in response to the current increase in inflation would be quite a bit shorter” and noted that the value of measures introduced since October 2021 is actually £490m; less than a sixth of the Scottish Government’s claimed figure.
Meanwhile, Scottish Labour leader Anas Sarwar said he is calling for emergency legislation to be put before the Scottish Parliament as the starting point for a response to help people with the rising cost of living.
“Our plan sets out areas where Holyrood can act urgently to help people now - and it could be passed as an Emergency Cost of Living Act when the Scottish Parliament returns.
“While bills spiral and wages struggle to keep up with inflation, the SNP has the power to help people but they’ve failed to take it.”
In terms of industries affected, Marc Crothall, chief executive of the Scottish Tourism Alliance, said that his sector will bear the brunt in the coming months.
“This will almost certainly see the closure of many businesses who are struggling to trade in this spiral of challenging conditions - many are already reporting they are on a knife edge with everything heading in the wrong direction; all costs are rising plus domestic and consumer spending and future booking indicators all in slowdown.
“The lowering of VAT rates, a freeze on the energy price cap and the introduction of a price cap for businesses, plus extended relief on business rates are just some of the measures we would urge governments to implement - and do so immediately before we see a wave of closures and job losses.
“Our businesses must be able to continue to invest in their people and product and importantly, be able to provide reassurances and certainty to future contracting suppliers and visitors wanting to travel.”
Kate Nicholls, the chief executive of UKHospitality, said: “Staff shortages have been at a record high in the hospitality industry for some time, causing thousands of operators to cut trading hours or close for whole days, at a cost of £21bn in lost revenue.
“At the same time, operating costs are soaring across the board for businesses already carrying heavy debt levels from the pandemic, so the industry needs urgent support from the government if it is to survive and generate jobs and growth.”
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