Official figures released on Wednesday revealed that British consumer price inflation remained steady at 8.7% in May, defying expectations of a slowdown. This comes just a day before the anticipated 13th consecutive interest rate hike by the Bank of England.
Economists surveyed by Reuters had predicted that the annual CPI rate would decrease to 8.4% in May, moving further away from the 41-year high of 11.1% recorded in October.
In response to the figures, finance minister Jeremy Hunt stated, "We are committed to supporting the Bank of England in its efforts to curb inflation in our economy, while also providing targeted assistance to address the cost of living."
Following the release of the data, the British pound initially rose against the US dollar and euro, but subsequently relinquished most of its gains.
According to the Office for National Statistics (ONS), core inflation, which excludes volatile prices of food, energy, alcohol, and tobacco and is considered a reliable indicator of underlying price pressures by the Bank of England, unexpectedly increased to 7.1% from 6.8% in May, reaching its highest level since 1992.
Grant Fitzner, the chief economist at the ONS, explained that the rise in airfare costs compared to the previous year, along with higher prices for second-hand cars, live music events, and computer games, contributed to the sustained high inflation.
Among major advanced economies, British inflation has proven to be more persistent, with the highest headline CPI rate in the G7. In May, Italy recorded a rate of 8.0%, placing it second.
It is widely anticipated that the Bank of England will raise interest rates on Thursday from 4.5% to 4.75%. Prior to Wednesday's data, market expectations for the peak in BoE rates had risen as high as 6% by early 2024.
The high inflation rate in Britain also poses a challenge for Prime Minister Rishi Sunak, who has pledged to halve the pace of price growth by the end of 2023, ahead of an anticipated national election in 2024.
