UK inflation was expected to fall in May but remained at 8.7 percent, according to figures released by the Office for National Statistics on Wednesday.
ONS chief economist Grant Fitzner commented that it “remains at a historically high level”, above the institution’s target of two percent. The Bank of England hopes that by raising interest rates it will be able to bring inflation under control.
The Bank of England is expected to raise the base interest rate to 4.75 percent on Thursday, June 22, to help calm the economy and control inflation. The rise of 0.25 percentage points will be the 13th consecutive increase in borrowing.
Yet in response to the latest inflation figures, some economists have warned that the Bank of England’s Monetary Policy Committee could choose to increase interest rates by half a point to five percent.
Investment analyst at Wealth Club Nicholas Hyett warned that the chances of a 0.5 percent hike “just got higher” after GDP data showed that the economy grew by 0.2 percent in April.
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Chancellor Jeremy Hunt said: “We know how much high inflation hurts families and businesses across the country, and our plan to halve the rate this year is the best way we can keep costs and interest rates down.
“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.”
Interest rates are expected to reach at least 5.5 percent by the end of the year, with economists not predicting a fall until February or March 2024. The Bank of England forecasts that they will drop to around 3.5 per cent by 2025.
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