Britain’s inflation remained flat in May, beating expectations that inflation would slow, according to data released Wednesday, a day before the central bank was widely expected to raise interest rates again.
Consumer prices rose 8.7% year-on-year, the same as in April, according to the National Bureau of Statistics. Economists had expected a slight drop. The statistic could add to fears that the UK’s cost of living crisis could intensify in the coming months as mortgage holders face the burden of rising interest rates pushed to combat inflation. There is
The Bank of England is expected to raise interest rates for the 13th time in a row to 4.75%, the highest since early 2008, on Thursday as it tackles persistent inflationary pressures.
Wages data last week showed wages growing faster than expected. On Wednesday, the National Statistics Office said core inflation, excluding energy and food prices, which is used to gauge how deeply inflation has penetrated the economy, fell to 7.1% in the year to May. It rose to its fastest pace since 1992, it said. The indicator, which policymakers are closely watching, rose to 7.4% from 6.9% in April.
The Bureau’s chief economist, Grant Fitzner, told the BBC that higher core inflation “could cause some concern”.
Headline inflation in the UK has slowed from its October peak of 11.1%, but remains uncomfortably high. That’s much higher than in the United States, where the consumer price index rose 4% in May from a year earlier, and in the eurozone, where inflation last month averaged 6.1% across 20 euro-using countries. The Fed has paused rate hikes, and traders expect the European Central Bank to raise rates one or two more times. But in the UK, investors expect the central bank to be forced to raise rates for a long period of time to keep inflation in check.
Bank of England Governor Andrew Bailey said last week Policymakers still expect inflation to come down, but said it is “taking a lot longer than expected.”
Those hopes are being demonstrated through the rise in government bond yields, which now exceed levels reached during Liz Truss’ brief but eventful premiership last fall.
Correspondingly, mortgage interest rates have also risen. Over the weekend, the average two-year fixed-rate mortgage rate hit 6% for the first time this year.
The central bank warned last month that many mortgage holders have not yet experienced the cost of higher interest rates. About 1.3 million households are expected to reach the end of the flat rate period by the end of this year. And the average mortgage holder in that group would see an increase in monthly interest payments of about £200 ($255) a month, or £2,400 over a year, if mortgage rates rose by 3 percentage points. (the number last suggested by mortgage rates). The moon, said the bank.
Months of rising prices on everything from utility bills to food have created additional financial strain. Food and non-alcoholic beverage prices rose 18.3% in May compared to the same month last year.
“We know how much high inflation is taking its toll on homes and businesses across the country,” Treasury Secretary Jeremy Hunt said in a statement Wednesday, adding that the government’s plan to halve the rate of He added that the best way to maintain Lower costs and interest rates.
“We will not hesitate to support the Bank of England in trying to keep inflation out of the economy,” he said.
