The UK Consumer Price Index (CPI) remained unchanged in May from April, sparking the likelihood of a 50 basis point (bps) interest rate rise from the Bank of England on Thursday.
CPI rose by 8.7% in the 12 months to May 2023, ahead of the consensus expectation for 8.4%.
Rising prices in air travel, recreational and cultural goods and services, and second-hand cars resulted in the largest upward contributions to the monthly change in both the CPIH and CPI annual rates.
Falling prices for motor fuel led to the largest downward contribution to the monthly change in CPIH and CPI annual rates, while prices for food and non-alcoholic beverages rose in May 2023 but by less than in May 2022..
Pressure is now on policymakers to raise interest rates to get a hold of inflation, which is still significantly ahead of the Bank of England’s target of 2%.
Interest rates are currently at 4.5%, although markets are now factoring in a 95% chance it will rise to 5%.
“There’s no way to sugar coat this, 8.7% is a bad number,” said George Lagarias, chief economist of audit and accounting firm Mazars.
He added: “This number will compel policymakers, the Government and the Bank of England, to further clamp down on consumption, in order to break the wage-price spiral.
“We expect that growth will further decelerate, possibly even pushing the economy past the recession threshold, even as early as the Autumn.”