• Thursday, June 13, 2024

Business

High inflation hinders UK cost-of-living fight

The latest data is a blow for Rishi Sunak who has made cutting inflation a priority for his government

UK Prime Minister Rishi Sunak (Getty Images)

By: Chandrashekar Bhat

BRITAIN’S annual inflation rate unexpectedly remained at 8.7 per cent in May, official data showed on Wednesday (21), piling pressure on the Bank of England and government to act over the cost-of-living crisis.

Markets had forecast a drop from April’s level, while the BoE was already widely expected to raise interest rates again on Thursday (22) to combat an inflation rate which is the highest among G7 nations.

The latest data is a blow also for Prime Minister Rishi Sunak, who has made cutting inflation a priority for his Conservative government heading into a general election next year.

Britain has endured months of strikes by workers demanding higher wages to help with the cost-of-living crisis.

“We know how much high inflation hurts families and businesses across the country,” chancellor of exchequer Jeremy Hunt said following the latest consumer prices index data.

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, said the Office for National Statistics.

“Core inflation rose again, to its highest rate in over 30 years,” noted Sarah Coles, head of personal finance at Hargreaves Lansdown.

“Lower energy costs will eventually feed into prices across the board, and we should see the pain at the supermarket subside a little in the coming months.

“However, in an awful lot of cases this isn’t going to bring prices down, they’ll just get more expensive more slowly,” she added.

Higher rates

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said the latest figures “warn that inflationary pressures in the UK are not under control and call for further rate hikes which will further squeeze the British households”.

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 on Thursday following a regular policy meeting in what would be the central bank’s 13th rate increase in a row.

“We will not hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy,” Hunt said.

The government wants to see inflation reduced to five per cent 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.”

Despite easing to 18.4 per cent in May, annual food price inflation remains close to an all-time high.

At the same time, mortgage rates and rents are soaring, biting hard into disposable income for millions of Britons, as pay rises fail to keep pace with the annual inflation rate.

(AFP)

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