U.K. CPI rises 8.7% in May, disappointing expectations for a drop to 8.4%
U.K. consumer prices showed no signs of cooling in May, with the headline figure rising 8.7% on an annual basis, disappointing economists’ expectations for an ease to 8.4%.
Data from the Office for National Statistics released on Wednesday showed core inflation, which strips out volatile food and energy prices, rose by 7.1% on an annual basis, which was also higher than the expected 6.8% rise.The U.K. statistics office said rising prices for air travel, recreational and cultural goods and services, and second-hand cars were the biggest contributors to inflation.
The data comes a day ahead of a Bank of England policy decision. The British pound GBPUSD, +0.09% initially strengthened on the news, but was recently slightly weaker at $1.2760. The Bank of England on Thursday is expected to lift interest rates for the 13th consecutive meeting by a quarter-point to 4.75%. Data released earlier in the week showed a key U.K. mortgage rate topping 6%.
“Core inflation in particular is not falling as fast as hoped, which makes the Bank of England’s decision easier in some ways; a rate rise is certain, all they have to do now is decide how big it will be. Beyond that, while rates are likely to continue up, it’s the trajectory that’s the debate, with a peak of 6% a real possibility,” said Neil Birrell, chief investment officer at Premier Miton Investors, in a note.
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