Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

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

Published 16/06/2021, 07:08
Updated 16/06/2021, 14:12
© 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

© 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.

© 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 Martinez/File photo

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.

Latest comments

the real reason why we are having lockdowns?? its to control inflation.
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
if you crash your economy in to a tree to avoid running over grandma then there will be consequences
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.