Interest rates ‘should stay high longer to contain inflation’
Leading economists have warned that UK interest rates are likely to rise further from 4.5 per cent and will need to “stay high longer” to get a firm grip on inflation.
The International Monetary Fund also warned against “hasty celebrations” that soaring inflation, which has soared into double digits, is over, saying it may “reemerge or plateau at an accelerated pace.”
However, she forecast that the UK would avoid a recession and post economic growth of a meager 0.4 per cent this year, better than the 0.3 per cent contraction predicted in April.
Chancellor Jeremy Hunt welcomed the “major improvement” in UK growth forecasts, which he said “recognises our efforts to restore stability and tame inflation”. But he had to grapple with grim figures on public finances, and persistently staggeringly high food inflation highlighted the economic woes of millions of families.
Bank of England Governor Andrew Bailey told the House of Commons Finance Committee that inflation was higher than expected but is now below the peak of 11 percent.
Grocery prices were 17.2 percent higher than a year ago in the four weeks ended May 14, compared with 17.3 percent in April, retail analysts Kantar said.
Inflation may have fallen for the second month in a row, but food price hikes still added an extra £833 to the average consumer’s annual bill, according to the latest figures.
On the milk shelf, the average cost of four pints of milk has fallen by 8p since last month but at £1.60 is still 30p higher than at this time last year.
Fraser McKevitt, Kantar’s head of retail and consumer intelligence, said: “The decline in grocery price inflation is undoubtedly welcome news for shoppers, but it’s still incredibly high — 17.2 percent is the third fastest grocery inflation we’ve seen since.” seen in 2008.”
Shoppers who sidestepped the higher prices led to a 15.2 percent increase in supermarket own-brand sales this month, almost double the 8.3 percent increase in branded goods.
Despite price pressure, consumers spent an extra £218million on groceries in the week of Coronation, with sales of wine and quiche soaring.
Sparkling wine and still wine sales rose 129 percent and 33 percent, respectively.
However, according to the Office for National Statistics, food price inflation in the UK was the second highest in the G7 group of wealthy nations (US, UK, France, Italy, Canada, Japan, Italy and Germany), surpassing only the latter.
Mr Hunt met with food manufacturers on Tuesday and asked them to do whatever they could to support consumers in the face of skyrocketing food prices.
The Chancellor also held talks with the Competition and Markets Authority to discuss whether a competition failure is causing consumers to pay higher food and fuel prices than they should.
Meanwhile, government lending rose to near a record £25.6 billion last month on the back of the cost of energy support programmes, higher welfare payments and rising debt rates, official figures revealed on Tuesday.
According to the Office for National Statistics, the shocking spike was the second-highest borrowing in April on record, surpassed only by the pandemic-hit month of 2020.
Economists had forecast borrowing of £17.9 billion for April.
The country’s debt rates alone rose to nearly £10 billion last month.
“Debt and borrowing remain too high at this time – so reducing debt is one of our priorities,” Mr Hunt said.
“We have made difficult but necessary decisions to balance the country’s balance sheet and if we stick to our plan and let our economy grow, the debt will come down.”
The ONS said central government revenue – the amount it receives from taxes and other payments – fell by £2.7 billion to £69.7 billion compared to the same month last year.
Meanwhile, spending rose by £22bn to £109bn, partly due to a rise in welfare payments, including inflation-driven increases in benefit payments such as Universal Credit.
The government also paid out a further £2.2billion in financial support to cover living expenses during the month.
UK debt rates rose to £9.8 billion in April, the highest monthly figure since records began in 1993, on the back of higher rates on inflation-linked government bonds.
Liberal Democrat Treasury Department spokeswoman Sarah Olney said the latest borrowing figures “show the chaos caused by the Conservative government’s economic mismanagement”.
She added: “The UK taxpayer is still feeling the effects of Liz Truss’ disastrous mini-budget.
“It’s frankly shocking that the government still hasn’t put people first by introducing a true random tax and reversing their unfair tax cuts for the big banks.”
Meanwhile, growth in the UK private sector slowed last month, falling well short of expectations, the UK flash S&P Global/CIPS purchasing managers’ index suggests.
According to the preliminary flash data, the closely followed reading fell to 53.9 in May from 54.9 in April.
Although experts had expected a significantly higher reading of around 54.7, the PMI numbers still showed growth. The April reading was a 12-month high.
Anything above 50 is considered a sign that the sector is growing.
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