Britain’s annual inflation rate unexpectedly remained at 8.7 per cent in May, official data showed Wednesday, piling pressure on the Bank of England and government to act over soaring prices.
Markets had forecast a drop from April’s level, while the BoE was already widely expected to raise interest rates again Thursday to combat an inflation rate which is the highest among G7 nations.
UK inflation had been expected to cool to 8.4 per cent last month while core inflation, which strips out food and energy costs, unexpectedly jumped to 7.1 per cent in May, the highest since 1992.
“The cost of airfares rose by more than a year ago and is at a higher level than usual for May,” Office for National Statistics chief economist Grant Fitzner said.
“Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high.”
Food and non-alcoholic beverage inflation stood at 18.4 per cent, easing slightly from 19.1 per cent in April.
“These numbers warn that inflationary pressures in the UK are not under control and call for further rate hikes which will further squeeze the British households,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
The BoE has already lifted borrowing costs to a 15-year high at 4.5 per cent in a bid to cool inflation.
This is set to rise further Thursday following a regular policy meeting in what would be the central bank’s 13th rate increase in a row.
“We know how much high inflation hurts families and businesses across the country,” Chancellor Jeremy Hunt said following the latest consumer prices index data.
“We will not hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy, while also providing targeted support with the cost of living.” He added.
The government wants to see inflation reduced to five percent by the end of the year, which would be around half the level at the start of 2023.
“Despite a modest easing in food price inflation, headline inflation remains at high levels,” noted Yael Selfin, chief economist at KPMG UK.
“More worryingly for the Bank of England, strong core inflation suggests that firms may now be passing on the rising costs from higher wage bills to consumers.”