Bank of England under pressure as prices shock leaves Britain lagging US and Europe in battle against inflation
The Bank of England will be under pressure to increase the pace of interest rate hikes today after official figures showed Britain still lagging behind the rest of the G7 in the battle against inflation.
Rates are expected to rise for the 13th time in succession, to 4.75 per cent, when the Bank’s Monetary Policy Committee announces its decision at midday.
But yesterday’s worse-than-expected inflation data from the Office for National Statistics (ONS), showing inflation was stuck at 8.7 per cent, has left the question of the size of the increase on a knife edge.
Financial markets were last night betting that there was a 51 per cent chance that rates would go up by a quarter of a percentage point to 4.75 per cent versus 49 per cent that they would go all the way to 5 per cent.
And further increases all the way to 6 per cent by the end of the year are pencilled in – something that experts fear will precipitate a recession.
Price spiral: Latest inflation data from the Office for National Statistics showed UK inflation stuck at 8.7%
Yesterday’s May inflation figure was a bitter blow to the Bank of England which has been raising rates rapidly to try to curb Britain’s price spiral.
Inflation has come down from the peak of 11.1 per cent last October but not nearly as quickly as hoped. It remains more than four times higher than the Bank’s 2 per cent target.
Worryingly, a measure of ‘core’ inflation – stripping out volatile factors such as energy and food – is going up even as the headline measure falls.
It climbed to 7.1 per cent in May, according to the ONS data. Britain’s record fighting inflation pales in comparison with other large economies and is the highest in the G7.
In the eurozone, inflation has fallen to 6.1 per cent and even in Italy – often scorned as a basket case by foreign commentators – it is lower than in Britain, at 8 per cent.
America, the world’s biggest economy, looks to be on top of the problem after an aggressive series of rate hikes saw inflation fall to 4 per cent.
That has allowed its central bank, the US Federal Reserve, to hit the pause button on rate hikes.
Yet the problem of global inflation – which spiralled last year after Russia’s invasion of Ukraine – has not entirely disappeared outside of the UK.
Fed chairman Jerome Powell told a congressional hearing yesterday that ‘inflation pressures continue to run high’.
Ruth Gregory, deputy chief UK economist at Capital Economics, said: ‘Inflation in the UK has stayed higher than elsewhere as the UK has endured the worst of both worlds – a big energy shock, like the eurozone, and labour shortages – even worse than the US.’
