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.“
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