Jun 21, 2023 - Economy

Inflation in the U.K. is holding stubbornly high, surprising economists

Data: U.K. Office of National Statistics; Chart: Axios Visuals

The U.K. has the worst inflation problem of any major developed economy. Last month, it got worse.

Driving the news: The nation's Consumer Prices Index rose by 8.7% in the 12 months through May, unchanged from the prior month and bucking analysts' expectations of a slowdown, the government's statistics agency said Wednesday.

  • The core measure that excludes energy, food, alcohol and tobacco costs increased by 7.1%, up from 6.8% in April.
  • That's the highest in 30 years, and a new high since the most recent inflation burst took off — a sign the economy's underlying price pressures are worsening, particularly in the services sector.

Why it matters: The Bank of England, which is expected to raise rates again Thursday, was the first major central bank to begin hiking rates when the globe's inflation burst showed signs of taking off.

  • These hotter-than-expected inflation figures might put more pressure on officials to consider raising rates for a lengthier period to bring inflation under control. That is likely to inflict more pain on the already-wobbly economy.

What they're saying: "All of this makes life even harder for the Bank of England," ING economist James Smith wrote Wednesday morning.

  • Smith points out the financial markets now expect interest rates to top out at 6% in the U.K. by early next year — implying six more rate hikes from current levels.
Go deeper