Bank of England set to raise interest rates again as high inflation sticks

The Bank of England is poised to raise interest rates for the 13th time in a row after disappointing inflation figures showed price rises have not eased.

The UK’s Consumer Prices Index (CPI) was unchanged in May at a rate of 8.7%, according to the Office for National Statistics.

It came in above analysts’ expectations for the fourth month in a row, and indicated that inflation has remained persistent despite the Bank’s efforts to bring it down to the 2% target.

Economists agree that the Bank’s Monetary Policy Committee (MPC) is likely to raise interest rates, from the current rate of 4.5%, and that more hikes are on the horizon.

Financial markets are expecting interest rates to rise by 0.25 percentage points to 4.75%. But there is a 40% chance that the rate could be pushed up even higher, by 0.5 percentage points to 5%.

Annual inflation was little changed in May 2023.

▪️ Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 7.9% in the 12 months to May 2023, up from 7.8% in Apr.

▪️ Consumer Prices Index (CPI) rose by 8.7%, unchanged from Apr.

➡️ https://t.co/iwxGmxnuD0 pic.twitter.com/GdeEbAt7il

— Office for National Statistics (ONS) (@ONS) June 21, 2023

Economists have said that important indicators of persistent inflation, namely core inflation, which strips out the price of energy, food, alcohol and tobacco, and wage growth, have remained elevated, which is likely to worry MPC policymakers.

Core CPI rose to 7.1% in May from 6.8% in April, the ONS said, and is often more in focus for the Bank when it sets interest rates.

Rob Morgan, Chief Investment Analyst at Charles Stanley, said: “Getting the inflation genie back into the bottle is proving troublesome for the Bank of England.

“With price momentum continually running above expectations alongside strong wages data, the Bank has no choice but to continue on a path of raising interest rates several more times.”

However, a spokesman for the Prime Minister said he is still on track to meet the Government’s target of halving inflation by the end of the year, despite last month’s setback.