Britain’s stubborn inflation fails to fall as forecast in May

LONDON – British consumer price inflation defied expectations that it would slow and held at 8.7 per cent in May, official figures showed on Wednesday, a day before the Bank of England (BoE) is forecast to raise interest rates for the 13th time in a row.

Economists polled by Reuters had forecast a drop in the annual CPI rate to 8.4 per cent in May, moving further away from October’s 41-year high of 11.1 per cent.

“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,” said Finance Minister Jeremy Hunt.

Sterling jumped against the US dollar and euro after the figures were released before losing most of its gains.

The Office for National Statistics (ONS) said core inflation – a measure which excludes volatile food, energy, alcohol and tobacco prices, and which the BoE views as a good guide to underlying price pressures – unexpectedly rose to 7.1 per cent from 6.8 per cent, its highest since 1992.

“The cost of airfares rose by more than a year ago and is at a higher level than usual for May,” said ONS chief economist Grant Fitzner.

“Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high.”

British inflation has proved more persistent than in other major advanced economies, with headline CPI the highest in the Group of Seven, ahead of Italy, which recorded a rate of 8 per cent in May.

The BoE is widely expected to raise interest rates on Thursday to 4.75 per cent from 4.5 per cent.

Before Wednesday’s data, markets had ramped up their expectations for the peak in BoE rates to as high as 6 per cent by early 2024.

Britain’s high inflation rate is also a problem for Prime Minister Rishi Sunak, who has promised to halve the pace of price growth by the end of 2023 before an expected national election in 2024.

REUTERS