Inflation pain will continue with double digit rate
May’s consumer price index of 9.1%, down from 9% the previous month, bucks a string of numbers that beat forecasts.
However, economists and the Bank of England have warned that double-digit inflation is imminent. The retail price index, which is still used in many billings, has already crossed that threshold after hitting 11.7% for a new 40-year high.
Along with food and fuel costs, many households are facing higher mortgage bills after successive Bank of England base rate hikes.
Laura Suter, head of personal finance at AJ Bell, said: “Unfortunately, more gloom lies ahead and hopes of waning inflation later this year are dead.
“Energy costs will drive inflation higher later this year, with the latest estimates showing the energy price cap will now hit £3,000 in October, much higher than many had expected, nor will it drop in the January update.
“It means one thing is certain, this rise in inflation is not going away anytime soon and this coming winter could be tougher than the last.”
Inflation at its highest in 40 years
Britain’s economy is on a ‘razor’s edge’ as inflation hits a new 40-year high, business groups warned today.
Inflation is at the highest level since March 1982, reaching 9.1% in May, according to official figures.
This puts further pressure on the Bank of England to keep raising interest rates and on employers to make new wage offers to workers.
The Office for National Statistics said the costs of food, energy and petrol continued to rise.
Inflation rose from 9% per year in April to 9.1% in May.
Economists say it will hit 10% or maybe 11% before it starts to fall.
David Bharier of the British Chambers of Commerce said:
“The further increase in consumer price index inflation to 9.1% underscores the strong pressure on businesses and households. Inflation is expected to continue to rise, with another energy price cap hike coming, leaving businesses with growing economic uncertainty, alongside labor shortages. An immediate measure to reduce the pressure on businesses would be to reduce VAT on business energy bills to 5%.
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US markets recover, Brent price drops
Tesla shares jumped 9% and big tech names including Apple and Google owner Alphabet closed more than 3% higher as U.S. markets rallied on their return from the long week -end.
The Dow Jones Industrial Average, which touched bear market territory last week, improved 2% and the tech-focused Nasdaq gained 2.5% as stock market sentiment showed signs of weakening. stabilizing after last week’s sell off due to recession.
There will likely be a pause in the rebound on Wall Street today, especially with Federal Reserve Chairman Jerome Powell due to testify before Congress today.
Traders will be looking for any further indications that the Fed plans to repeat last week’s 75 basis point interest rate hike at its next meeting in July.
European markets will also open lower in response to weak trading in Asia and the impact of a demand-driven 3.5% fall in the Brent price to just above $110 a barrel. .
Oil giants BP and Shell are expected to weigh on the London elite as CMC Markets expects the FTSE 100 index to open 70 points to 7082.