UK inflation hits new 40-year high of 9.1%

On a monthly basis, CPI rose by 0.7% in May, compared with a rise of 0.6% in May 2021.

CPIH inflation, which includes owner occupiers' housing costs, saw an annual rise of 7.9%, up from 7.8% in April.

Increased prices for food, transport, and electricity, gas and other fuels, were the largest contributors to rising inflation in May.

Rachel Winter, partner at Killik & Co, commented: “The Bank of England is facing a tough challenge to balance inflationary pressures and the need for economic growth. Last week’s quarter-point interest rate rise suggests it’s pursuing a more cautious approach than many other central banks.

“Policymakers are clearly conscious of the risks of an entrenched wage-price spiral and have pledged to “act forcefully” if required. This raises the prospect of bigger interest rate rises on the horizon."

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "The latest temperature check of the UK economy shows the mercury rising again, with no end yet in sight to feverish price rises. The Bank of England has already forecast that inflation will hit 11% by the Autumn, and it’s steadily creeping towards that ugly marker.

"The last time inflation had been at the horrible height of 9.1% it was in March 1982, when the group Tight Fit were at the top the charts, an apt name given that then, like now, the squeeze on incomes was such a strain for consumers.

"In contrast though interest rates were at 13% back in March 1982, whereas today they stand at just 1.25%. With the economy taking on more of a sweat, the pressure is now on the Bank of England to apply much cooler compresses in the form of successive interest rate rises over the next few months to try and reduce demand and bring down prices. May’s rise in inflation was smaller compared to the jump we saw in April, so although the pace of rate rises looks set to continue, the Bank may hold off from bringing in a larger hike of 0.5% for the time being."

Jonny Black, strategic director at abrdn, added: “Clients have now spent half the year watching inflation soar, and hearing nothing but forecasts of even higher rates to come.

“In these uncertain times, confidence is a hard thing to come by. Many clients will, understandably, have serious concerns about what this means for their finances – particularly those relying on their savings or investments.

“But just as they did during the height of lockdown, advisers have an opportunity to step-up to help clients cut through intimidating headlines and steer through speculation to understand what this means for them now, and accurately forecast how they could be affected in the future. Done well, this support will not only maintain good client outcomes, but underline the expertise and relationships that make advice is so valuable – and something everyone can benefit from.”