UK 'global outlier' as inflation refuses to fall

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A double whammy of bad news on inflation and public finances has dampened Tory hopes for tax cuts before the election and intensified fears of a mortgage "ticking time bomb" facing many UK households. Inflation remained at a higher-than-expected 8.7 percent in May, according to new data this morning, the fourth consecutive month that prices have exceeded forecasts, but the "core" measure, which excludes volatile elements such as food and energy prices, increased. again from 6.8 percent to 7.1 percent. UK inflation remains much higher than the EU's 7.1 percent and the US's 2.7 percent. Paul Dales of Capital Economics said the acceleration in the core figure left the UK “increasingly looking like the global outlier and stagflation.” You are viewing a snapshot of an interactive chart. This is most likely because you are offline or JavaScript is disabled in your browser. The data increases pressure on the Bank of England to continue its interest rate increase program tomorrow.

Traders expect an increase of at least 0.25 percentage points to 4.75 percent and predict rates will peak at 6 percent early next year. Two-year gilt yields hit 5.1% after the data was released, the highest level since the 2008 financial crisis, before Russia Mobile Number List declining slightly. (You can read our explainer here if you want more details on how the bond market is driving up mortgage rates.) Mass home repossessions are unlikely due to higher levels of fair housing and regulatory pressure on lenders, but the pressures on households are intense. First-time buyers are struggling to access mortgages as rising interest rates have meant a reduction in the number of products for borrowers with small deposits by more than 40 per cent over the last year. Renters are also under pressure, with new data showing annual prices rising at the fastest pace in seven years.



Separate figures this morning showed UK government debt surpassed GDP for the first time in 62 years, as borrowing doubled due to the cost of social security benefits and energy support schemes. The higher-than-expected net total of £20 billion was the second highest for May since monthly records began in 1993. High inflation and rising mortgage costs have also taken center stage in politics. Opposition leader Sir Keir Starmer said homeowners with loans had been hit by a “Tory mortgage penalty” of £2,900 a year in extra costs. Today's data also removes much of the headroom for Chancellor Jeremy Hunt to deliver big tax cuts and makes Prime Minister Rishi Sunak's pledge to halve inflation to around 5.5 per cent by the end of 2023 will be much more difficult. The FT editorial board agrees with Hunt that the best way to support mortgage holders is for the BoE to reduce inflation. He has a chance to show he's getting a grip at his meeting tomorrow, says the FT, but concludes: "Unfortunately for homeowners, things will have to get worse before they get better.