LONDON — U.K. inflation held steady at 8.7 percent in May despite analyst expectations it would fall to 8.4 percent following a broader European trend, the Office of National Statistics confirmed today.
It makes it almost certain the Bank of England will increase interest rates to 5 percent in August.
The Bank is currently expected to lift rates by 0.25 percentage points at its meeting on Thursday to 4.75 percent, but before today’s data not all analysts were agreed there would be another in August.
With core annual inflation — which strips out volatile items like energy and food — rising to 6.5 percent in May from 6.2 the previous month. the highest rate since November 1991, the scope for any imminent rate-hiking pause by the Bank has been greatly reduced. The country’s economy now risks a wave of mortgage defaults as a slew of fixed rate deals head for expiry in the second half of this year.
Among the factors unexpectedly pushing rates higher this month included rising prices for air travel, recreational and cultural goods and services as well as second-hand cars, the ONS said. The rise comes despite an overall fall in energy prices, which had helped see inflation rates plateau in other parts of the continent.
The data is likely to unnerve Prime Minister Rishi Sunak, who pledged in January he would slash inflation in half if he came to power while putting the economy back on a steady course following the disastrous run of his predecessor Liz Truss. Inflation rates were 10.7 percent when he made the promise.