The latest inflation data reveals that the headline rate of Consumer Price Index (CPI) stood at 8.7 per cent for the 12-month period ending in May 2023, according to the latest ONS figures.
Meanwhile, the Bank of England is expected to increase interest rates by 25 basis points tomorrow, as part of its ongoing efforts to curb inflation.
Canada Life technical director Andrew Tully says: “Despite inflation remaining flat, many people won’t be feeling the benefits, especially as wages continue to lag behind inflation, while we have higher mortgage and rent costs looming.
“The Bank of England is poised to raise interest rates by 25bps tomorrow in a further attempt to cool inflation. This will only serve to heap misery on the many households on variable rates or those whose fixed-term mortgages are coming to an end this year.
“There are no easy fixes, and policymakers and economists will be keeping a close eye on the data points to see if inflation is becoming baked into the economy.”
Canada Life Asset Management liquidity fund manager Steve Matthews says: “We have seen a round of hikes from most major central banks in recent weeks as they try to slow economic activity and tamp down inflation.
“In the UK, The Bank of England (BoE) is seeing energy costs fall, but this being offset by stubborn wage numbers and whilst some supermarkets have this week introduced price cuts, the previous jumps in food prices have ensured that core inflation is still on the rise.
“This would indicate the need for further aggressive action to curb spending, but with an estimated 800,000 fixed rate mortgages expiring before the end of the year, the BoE will be wary in finding the equilibrium between slowing the economy and forcing an abrupt crash.
“Markets are pricing in five further hikes before the end of the year with speculation that there is scope for a 50bps rise somewhere along the way. On balance, we expect the BoE to raise its Base Rate by 25bp on Thursday to take it to 4.75 per cent and subsequent hikes in August and September to take the rate to 5.25 per cent in the event that the economy does not rapidly cool over the summer.“
AJ Bell head of financial analysis Danni Hewson says: “Markets had been erring on the side of caution when it came to pricing in how quickly UK inflation is falling, but the news that there’s been no change in the headline CPI rate will send something of shiver through even the hardiest spectator.
“Inflation had been expected to fall – at least a bit – but it hasn’t obliged, remaining stubbornly sticky and cementing the prospect of a rate rise tomorrow as well as raising expectation that the hike will be higher than had been previously anticipated.
“There is a tiny bit of good news hidden in this troubling update from the ONS and that’s the rate at which food prices are rising, which has slowed, but it will be little comfort to all those facing huge increases in their monthly mortgage payments.
“Savings cushions have been eroded over the past year and there will be many households facing the real prospect of being unable to keep paying for the roof over their heads.
“And these inflation numbers show the Bank of England still has a big job to do if they’re to root out the inflation which seems to have become embedded in the very fabric of our economic lives.
“Central bankers will be chilled by the news that inflation is up in the service sector. Prices in bars and restaurants, cinemas and museums, chiropractors and dentists have all risen as those much-discussed wage hikes begin to filter through.
“Previous comments about wage restraint might have fallen as flat as a pint of warm lager but they were rooted in a real fear that a wage price spiral was nigh; and beating back rising prices in the service sector is a lot more difficult than tackling the rising price of goods.
“With a tight labour market comes the pressure on employers to keep their skilled workforce happy, which is increasingly difficult as that workforce becomes even more inflation weary.
“They’ve battled through high energy costs, switched supermarkets and traded down for some of those nice to haves, but the huge numbers some homeowners are facing when they come to re-mortgaging will undoubtedly put pressure on employers to hike wages further in the coming months.
“There will be more pressure on the government to step in and help struggling homeowners, especially as an election creeps ever closer. But another set of figures has also been released today which shows that public sector net debt has surpassed 100% of GDP for the first time since March 1961.
“Support for struggling households during Covid and the energy crisis has come with a significant price tag as benefits have been uprated and the government is also being hit with higher wage costs.
“We were warned that the medicine required to cure our inflationary ailment would taste foul, but the reality is proving more unpalatable than many had expected.
“Two-year gilt yields have shot up to the highest since 2008 and markets are now split on whether the Bank will raise rates by just a quarter percent or go further, with a 50 basis point hike now very much in play.”
Standard Life managing director for retail Dean Butler says: “The latest inflation figures show a nation still dazed by rapidly spiralling prices. The toll on households trying to pay their bills each month is mounting, but those lucky enough to have cash-based savings are starting to see a real dent in the value of their hard-earned accounts.
“Interest rates have risen fast over the last 12 months, but with most best buy instant access rates currently sitting below 4 per cent they’re still nowhere near a match for inflation, which remains at 8.7 per cent. With inflation forecast to fall to around 5 per cent by the end of 2023, savers face a race against the clock to break even.”