UK consumer prices logged a steady growth rather than a slowdown in May and core inflation accelerated further adding pressure on the Bank of England to raise the benchmark rate by half a percentage point.
Consumer price inflation remained unchanged at 8.7 percent in May, the Office for National Statistics reported Wednesday. The rate was forecast to ease to 8.4 percent.
The upward contributions to inflation from rising prices of air travel, recreational and cultural goods and services, and second-hand cars were largely offset by falling prices for motor fuel.
Core inflation that excludes energy, food, alcohol and tobacco climbed to 7.1 percent, which was the highest since March 1992. The rate was forecast to remain at 6.8 percent in May.
The CPI goods inflation slowed to 9.7 percent from 10.0 percent in April. Meanwhile, the CPI services rate rose to 7.4 percent from 6.9 percent.
“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,” Finance Minister Jeremy Hunt said.
“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,” Hunt added.
Markets expect the BoE to raise the bank rate by a quarter point on Thursday. Currently, the bank rate is at 4.50 percent, which is the highest since 2008.
ING economist James Smith said the bar is set pretty high for the BoE to shift the pace of rate hikes to 50 basis points this week. A 25bp hike is basically guaranteed, as is another in August, the economist added.
Traders are pricing in the bank rate to peak at 6 percent. Such a high rate to tame inflation risk dampening the property market and push the economy into a recession.
On a monthly basis, overall consumer prices gained 0.7 percent, which was slower than the 1.2 percent increase in April, ONS data showed.
Producer prices data showed a slowdown in pipeline inflation in May. Output prices posted an annual increase of 2.9 percent, the weakest since March 2021, following a 5.2 percent gain in April. The rate was also below economists’ forecast of 3.6 percent.
At the same time, output prices declined 0.5 percent after falling 0.2 percent in the previous month.
Data showed that input price inflation has been slowing over the last eleven months. Input price inflation hit the lowest since November 2020. Annual growth in input prices eased to 0.5 percent from 4.2 percent in April. Prices were forecast to climb 1.2 percent.
The monthly decline in input prices was the biggest since April 2020. Producer prices fell 1.5 percent, in contrast to the 0.1 percent rise in the previous month.
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