The Consumer Prices Index (CPI) measure of inflation remained flat at 8.7 per cent in the 12 months to May, defying expectation of a drop to 8.4 per cent.
On a monthly basis, CPI rose 0.7 per cent and according to the Office for National Statistics (ONS), core CPI which excludes energy, food, alcohol and tobacco rose by 7.1 per cent, up from 6.8 per cent in April. This is the highest rate since March 1992.
The ONS noted that rising prices for air travel, recreational and cultural goods and services, as well as second-hand cars resulted in the largest upward contributions to the monthly change.
Live music concert tickets, games, toys, hobbies and package holidays helped push up inflation, but was partially offset by falling prices for fuel.
There was also a downward contribution from food and non-alcoholic beverages.
Turning to food prices, the ONS revealed a slowing in the annual rate to 18.4 per cent in the year to May, down from 19.1 per cent in April and 19.2 per cent in March.
The price of milk, cheese and eggs fell back, while the price of fish increased from 14.2 per cent in the year to April, to 16.6 per cent in the year to May.
Steep base rate hike on the cards
Given all the data, experts suggested it could mean the Bank of England is forced into raising the base rate by 0.5 per cent to 5 per cent at its meeting tomorrow (Thursday 22 June), instead of the 0.25 per cent widely predicted before.
Tom Hopkins, portfolio manager at BRI Wealth Management, said: “Core inflation is the key concern, keeping UK inflation stubbornly high. We would have had downward contributions coming from fuels and food, unfortunately this would have been offset by rises in services inflation. At 8.7 per cent, households will still be feeling the pain of the squeeze on budgets.
“The Bank of England meets tomorrow to decide interest rates, but given the strong rise in core inflation coupled with a surprisingly resilient economy, we believe a 50 basis point rise will be more in consideration for the Bank of England than the unanimous expectation of 25bp amongst economists.
“Inflation remains well above the two per cent target rate and given Rishi Sunak’s target of halving inflation to five per cent by the end of the 2023 that he pledged in January, maybe the Bank of England needs to do more.”
Danni Hewson, AJ Bell head of financial analysis, said: “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.”
Hewson added that 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”.
She said: “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 remortgaging 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.”
