Inflation unchanged at 8.7% brings downwards trend to a screeching halt
21st June 2023 08:13
by Myron Jobson from interactive investor
Headache for Bank of England as mortgage market remains in flux.
Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Headline inflation stubbornly dug its heels in last month, remaining unchanged from the 8.7% recorded in April. It is a real shocker that brings the downwards trend in inflation to a screeching halt and poses further headaches for the Bank of England ahead of its interest rate decision.
“Looking past volatile food and energy prices, core inflation rose to its highest level in 31 years, hitting 7.1% - despite the Bank of England’s robust approach to rising rates. With core inflation proving to be hot and stickier than initial forecasts, it now seems odds-on that the Bank of England will hike the base rate further tomorrow. The key question is how much higher will interest rates go in future?
“The latest ugly inflation data could spell more mortgage misery for those at or nearing the end of their fixed-rate deals following a stress-inducing couple of weeks which has seen lenders reprice their home loans on market expectations that interest rates will peak at a higher level, and stay higher for longer. This cohort continue to wrestle with a double whammy of rising borrowing costs and stubbornly high inflation, which threatens to lay waste to finely tuned budgets.
“The good news is the fall in the cost of wholesale energy is set to feed through to household bills in July. Businesses will also benefit from a reduced cost burden from lower gas and electricity prices, which should eventually feed into lower core inflation. But prices remain far higher than Britons want and need them to be to maintain financial resilience, and strong wage growth is likely to keep inflation elevated high throughout this year. Put simply, while glimpses of the light at the end of the tunnel can be seen, the road back to normal remains a long, winding, and uncertain one.”
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