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UK inflation rises to 9.1%: What are the experts saying?

Laura Suter, head of personal finance at AJ Bell:

“A slight uptick in inflation in May to 9.1% means that the UK public have been spared double digit inflation for now, but it’s just around the corner. RPI inflation, which is what many of us see our bills increase by every year, has now hit 11.7% — another 40-year high.

“Once again fuel is the factor driving inflation higher, from home energy bills to petrol and diesel prices pushing up transport costs. As a result of rising energy costs, the 12-month inflation rate for electricity is 53.5% and for gas is an eye-watering 95.5%. And May saw another record broken, with the largest increase in transport costs since records began in 2006. As a result of petrol and diesel prices hitting new records in May, the 12-month inflation rate for motor fuels hit the highest rate since 1989 – when the figures were first calculated.

“But it’s not just energy bills increasing, prices are rising across the board. Soaring food costs are also playing their part, with the annual supermarket bill estimated to have risen by almost £400 as a result. Hardest hit were bread, cereals and meat, as they all suffered from the impact of the Ukraine/Russia crisis on grain supplies. Food inflation is expected to increase again in June’s figures, partly due to the ongoing increase in prices and partly because the nation splashed out on fancier food during the Jubilee celebrations.

“Another factor bumping up inflation in May was mortgage costs, with the successive Bank of England base rate hikes pushing up mortgage rates and leading to the largest increase in costs for homeowners since 1999. These costs will continue to increase this year, as we see the impact of the latest rate rise filter through to mortgage rates and push up costs for those re-mortgaging or first-time buyers.

“Unfortunately, more gloom lies ahead, and the hopes of inflation ebbing away later this year are dead. Energy costs will drive inflation higher later this year, with the latest estimates showing that the energy price cap will now rise to £3,000 in October, far more than many had expected, and that it won’t fall in the January update either. It means one thing is for certain, this rising inflation isn’t going away any time soon and this coming winter could be tougher than the last.”

Paul Craig, portfolio manager at Quilter Investors:

“With the UK currently preoccupied by rail strikes, today’s 9.1% inflation rate is a reminder of the challenges facing the BoE, government, businesses and consumers. While the rate of growth in the inflation rate may have slowed, we have plenty warnings that this is not the peak, with the Bank of England expecting it to climb to 11% later this year following the increase in fuel caps. Disappointingly, the cost-of-living crisis is not going to be a short-lived affair, and this ultimately leaves the Bank of England stuck between a rock and a hard place. 

“While the US has acknowledged the need to go hard and fast on interest rates, the Bank of England continues to plod along at a slower pace, trying not to tip the economy into recession at a time when businesses and consumers are feeling the pinch. However, their current strategy is doing little to stop inflation running away from it and thus harder decisions are coming very soon with the Bank already hinting at a larger rise at its next meeting. 

“Whether or not the Bank can avoid a hard landing remains a moot point while oil prices remain elevated, utility bills show no sign of falling and price rises continue to get passed on to the end consumer. Furthermore, the geopolitical situation shows no sign of abating either, which touches inflationary pressures the Bank cannot reach. While the government has pulled some fiscal levers to date, this period of protracted inflation may mean more will have to used later in the year, although while Boris may re-enact the scene from Oliver Twist, Rishi might have to say the bowl is close to empty. The government and Bank of England will be watching the labour market closely, therefore, and not just for signs of more strikes over inflationary lagging pay rises. With inflation where it is at, any sign of employment weakness creeping in will be a big warning sign for the economy.”

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