Interest rates are expected to rise again after data revealed that inflation remained stubbornly high.
Inflation, which measures the rate at which prices grow, was 8.7% in the year to May, the same as in April.
The surprising amount was caused by growing prices for flights and used automobiles, but the cost of food and electricity is already putting a strain on household finances.
On Thursday, interest rates are largely projected to rise by 0.25% to 4.75%, although others speculate that they may now rise to 5%.
The Bank is responsible for managing inflation at 2%, but the present rate is four times higher.
Why is inflation so high in the United Kingdom?
What is the purpose of the Bank of England changing interest rates?
How the interest rate increase will affect you
Since the end of 2021, the Bank of England has been gradually raising interest rates. This increases the cost of borrowing money and, in theory, encourages people to borrow less and spend less, implying that price increases should slow.
This has raised concerns about loans, notably mortgages, with homeowners – one-third of persons in the UK – risking significant rises in repayments as fixed-term terms expire. First-time buyers may potentially be priced out of the market as loan conditions tighten.
On Wednesday, the average two-year fixed rate mortgage was 6.15%, while five-year deals were 5.79%.
On Thursday, Chancellor Jeremy Hunt appeared to advocate future interest rate rises, saying the government would not “hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy.”
The Conservative government, according to Labour’s Shadow Chancellor Rachel Reeves, has failed to “get a grip” on inflation.
According to Danni Hewson, head of financial analysis at AJ Bell, the latest inflation statistic would “send something of a shiver through even the hardiest” economy observer.
“Inflation was expected to fall – at least a little – but it hasn’t,” she added, “remaining stubbornly sticky and cementing the prospect of a rate hike.”
