Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

UK inflation hits 2.1%, vaults past Bank of England target

Economic IndicatorsJun 16, 2021 14:12
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A woman in a protective mask is seen at Andreas Grocery store after it received a delivery of fresh fruit and vegetables, as the spread of the coronavirus disease (COVID-19) continues, in London, Britain, March 20, 2020. REUTERS/Dylan Martine

By William Schomberg and David Milliken

LONDON (Reuters) - British inflation unexpectedly jumped above the Bank of England's target in May when it hit 2.1%, part of a post-lockdown climb in prices that is expected gather pace.

The acceleration of the consumer price index from April's 1.5% largely reflected how weak inflation was in May 2020 when the economy was reeling from its first tight lockdown.

The figure represented the first time inflation has gone above the BoE's 2% target in almost two years and was above all 33 forecasts in a Reuters poll of economists which had pointed to a rise in inflation to 1.8%.

Yields on British government bonds rose early on Wednesday with the yield on two-year gilts - which are sensitive to speculation about BoE policy moves - briefly touching their highest in nearly a month.

Investors around the world are assessing the risks of a sustained jump in prices, especially in the United States where annual inflation hit 5.0% in May, the highest in almost 13 years, and where President Joe Biden has proposed a $6 trillion stimulus package.

"Whether the upside news proves temporary or persistent, it is clearly a hawkish surprise," HSBC economist Chris Hare said.

"Of course, some major uncertainties, such as the end of the furlough scheme in September, remain. But if the upside surprises continue, calls for a rate rise on the Monetary Policy Committee may grow louder."

The CPI data showed fuel prices in May were almost 18% higher than a year earlier while clothing and footwear costs rose by 2.1% as people, emerging from their lockdown isolation, bought new outfits.

The price data was collected on or around May 11, before pubs and restaurants were allowed to serve customers indoors and cinemas and hotels reopened from May 17.

The BoE has said it expects inflation to hit 2.5% by the end of this year before settling back to its 2% target as the impact of post-lockdown energy price rises fades along with other cost pressures, such as bottlenecks in supply chains.

Previous surges in inflation since the 2008 financial crisis proved temporary, as the labour market was too weak to create the type of wage-price spirals which occurred in the 1970s.

The central bank is expected to leave policy unchanged on June 24 after its latest meeting.

SIX-MONTH SURGE

Jack Leslie, an economist at the Resolution Foundation think tank, said the speeding up of price growth from 0.3% in November to 2.1% in May represented the fastest six-month rise since sterling collapsed after the 2008-09 financial crisis.

"But UK inflationary pressures are different - and nowhere as near as large - as those causing fierce debate in the U.S.," Leslie said.

Sterling rose slightly after the ONS figures.

Core inflation, which excludes the price of food, energy and other volatile items, rose to 2.0% in the 12 months to May from 1.3% in April, the Office for National Statistics said.

While BoE Governor Andrew Bailey and most of his colleagues say the climb in inflation will be temporary, Chief Economist Andy Haldane said last week the central bank faced the "most dangerous moment" since the European Exchange Rate Mechanism crisis in 1992.

There were signs of further price pressure ahead in Wednesday's data.

Prices paid by manufacturers for their inputs rose by 10.7% in the 12 months to May, the highest since September 2011, and the prices they charged rose by 4.6%, the biggest increase since January 2012.

House prices in April were 8.9% higher than a year before, slowing from a 9.9% rise in March which was the strongest increase since 2007. The ONS said April's dip reflected a rush of sales in March when buyers had been expecting the expiry of a cut in stamp duty which has since been extended.

UK inflation hits 2.1%, vaults past Bank of England target
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Ben Delaney
Ben Delaney Jun 16, 2021 12:28
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the real reason why we are having lockdowns?? its to control inflation.
Thomas Barnard Linsell
Thomas Barnard Linsell Jun 16, 2021 10:42
Saved. See Saved Items.
This comment has already been saved in your Saved Items
This figure is so wrong. Obviously these people do not fill their cars up. Fuel up over 30% and supermarket prices up 25% since Christmas
Drake Richards
Drake Richards Jun 16, 2021 7:41
Saved. See Saved Items.
This comment has already been saved in your Saved Items
if you crash your economy in to a tree to avoid running over grandma then there will be consequences
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email