UK inflation stuck at 8.4%

Worse still, core inflation increased to 7.1%

21 June 2023

UK inflation continues to confound in its own inimitable way. Inflation in May rose 8.7% year-over-year against expectations of 8.4% and showed inflation was the same year-on-year rate as the previous month. Worse still, core inflation increased over the month from a 6.8% annual clip in April to 7.1% in May. Persistent inflation is here and the current administration’s (perhaps rather foolish) pledge to half inflation by the year end has confronted them with a huge sword to fall on. Pleas from Downing Street to Threadneedle Street to get a handle on inflation, which curiously it seems to have no ability to do, despite raising rates at one of the fastest rates in its history, will be more than insistent after this month’s inflation surprise. A hike tomorrow of 25 bps is all but guaranteed and after today’s numbers, it could even be more. An unenviable position the Bank of England finds itself in. Hitting consumers with higher rates will slow the economy and push it towards contraction. Being less hawkish only allows this structural post-Brexit inflation issue to metastasise further. Impossible choices for policymakers indeed.