Cost of Living - Latest: Another UK rate hike now 'likely' as inflation doesn't fall as much as expected (2023)

Basic points
  • Inflation moderates to 8.7%
  • The cost-of-living crisis is starting to wind down, so why aren't economists happy, and what could happen next? | ed conway
  • Another rate hike now 'hard on the table'
  • New forecast of when the 2% inflation target will be reached.
  • The IMF dramatically improves the outlook for the UK economy
  • Netflix crackdown on password sharing begins in the UK
  • Your dilemmas:My employer reduced my work hours during maternity leave, is this allowed?
  • Mom Budget:Savings for your children|Do food subscriptions save you money?|vacation money|The best broadband deals


Five big banks may have broken the law by sharing information in online chat rooms

Five big banks broke the law by sharing confidential information about government bond transactions in online chat rooms, Britain's competition watchdog has tentatively ruled.

Citi, Deutsche Bank, HSBC, Morgan Stanley and RBC illegally exchanged information in one-on-one conversations in Bloomberg chat rooms, according to the Competition and Markets Authority (CMA).

The talks, which involved the buying and selling of UK government bonds, were allegedly conducted by multiple traders between 2009 and 2013.

"This may have deprived taxpayers, pension savers and financial institutions of the benefits of full competition for these products, including minimizing borrowing costs," said Michael Grenfell, Executive Director of Compliance at the CMA.

Deutsche Bank and Citi have admitted to taking part in the alleged talks involving them, but HSBC, Morgan Stanley and RBC (Royal Bank of Canada) have not admitted wrongdoing.

The CMA said the investigation was ongoing and could eventually impose fines if it found two or more banks involved in anti-competitive activity.


Expense calculator: see what prices have gone up or down

As we reported this morning, prices have risen by an average of 8.7% over the past 12 months, putting pressure on already strained household budgets.

But how much have your personal expenses increased? Use our calculator to see how much the prices of food, clothing, and leisure activities you pay for will increase.


The median house price has fallen £3,000 since last month, but has risen since last year.

Median house prices in the UK rose 4.1% in the 12 months to March, according to the Office for National Statistics (ONS).

A typical property now costs around £285,000 - £11,000 more than the same time last year.

However, the March figures are £8,000 cheaper than the last peak in November and £3,000 less than February.

Here's a national breakdown of home prices and their growth since March 2022:

  • England - £304,000 - up 4.1%
  • Wales - £214,000 - up to 4.8%
  • Scotland - £185,000 - up to 3%.
  • Northern Ireland - £172,000 - 5% increase.

Regular readers will recall earlier this week that Rightmove said that house prices have risen over the past month. Their figures are very up to date, while the official ones published by the ONS are out of date.


Another rate hike now 'hard on the table'

Ed Conway isn't the only one who thinks that today's inflation could trigger another rate hike.

Pantheon Macroeconomics said the drop from 10.1% to 8.7% was "very small."

Interest rate increases are obviously the Bank of England's way of alleviating inflation because it means people have less money to spend and are encouraged to save, and when that happens prices tend to rise more slowly.

Pantheon Macroeconomics reports: "A further increase in the bank rate to 4.75% at the next MPC meeting on June 22, from 4.5%, is now firmly on the table."

Rising food prices and rising inflation in the service sector will be a "concern" for the bank, the firm said.

As for what will happen to inflation now, Pantheon Macroeconomics hints at something to look forward to tomorrow...

“CPI inflation will continue to fall rapidly in the coming months. Tomorrow Ofgem is likely to announce that a typical household's annual energy bill will fall to around £2,050 in July, down 18% from its current level of £2,500.

"This will ensure that the share of energy in the base rate is reduced."


Three-Minute Read: The Cost-of-Living Crisis Is Starting To Ease, So Why Are Economists Angry And What Could Happen Next?

Ed Conway, economist and data editor

Economics is sometimes called "the dismal science," and by listening to today's economists, you can see why.

Inflation, the rate at which prices rise each year, just fell into double digits for the first time since last summer, from 10.1% in March to 8.7% in April.

Finally, the cost of living in a crisis, or rather the rate at which the crisis deepens, is beginning to recede. So why are economists so down this morning?

We come back to the fact that underneath that big inflation number are two separate problems. And while one's news is good, the other's is bad.

Let's get the good news first.

The main reason for the increase in the cost of living in recent years is the increase in energy prices.

These have been reflected in household bills and fuel costs, and to some extent elsewhere. It was an unhappy time for many.

The good news is that some of that pressure is starting to ease. While energy bills are still many times higher than they were a few years ago, their growth rate (remember that inflation is an annual growth rate, not absolute levels) is slowing.

The biggest jumps in energy bills happened a year ago, so the annual rate of energy price inflation no longer seems so dramatic.

And there will be better news on that front tomorrow when Ofgem announces the final level of the energy price cap, which will determine household bills later this summer.

It is expected to fall for the first time in years.

But something else is also happening here. Because when economists look at inflation, they're usually not impressed by higher fuel or food prices.

Although they can be painful for homes, these prices are quite volatile from year to year. But remove these volatile elements of headline inflation, and what's left is something called "core inflation."

This is a better measure of the underlying direction of inflation. If the core is high, headline inflation is more likely to stay high not just in the short run, but in the long run as well. And core inflation is now high.

Indeed, far from falling in April like the general rate, it went from 6.2% to 6.8%, its highest level in three decades.

It's a number that worries economists deeply because it suggests there's a chance that inflation is taking root in the economy, that households and businesses are beginning to assume that prices will rise for a while.

In other words, while today's headline count sounds like good news to most of us, and indeed is good news in some respects, the picture behind today's data is anything but. This suggests that inflation is stickier, more problematic than previously thought.

The upshot of this is that the Bank of England is likely to look at today's data and assume that its job is not done yet.

Your job is to ensure that inflation stays as close to 2% as possible, and today's data makes that task seem much more difficult.

Therefore, it is possible that the Bank will raise interest rates again at its meeting next month, up to 4.75%. And then perhaps even more, which in turn will only increase the pressure on many households.

As grim as it sounds, this cost-of-living crisis is far from over.


Asda will resume offering £1 children's meals in the medium term

To help boost food prices, Asda has announced that it will offer £1 children's meals in the cafeteria for the next six months.

The supermarket served more than 115,000 meals during the two weeks of Easter.

"The deal stands out from other retailers because it doesn't include hidden extras, such as a minimum spend for an adult," Asda said.

The menu includes penne pasta with meatballs and a vegetarian pasta dish with hidden vegetables. Kids also get a free fruit when they buy the £1 hot meal deal.

As an alternative to a hot meal, Asda Cafés also offer a £1 cold option which includes a sandwich, drink and fruit.


New forecast when inflation reaches the 2% target.

While it is positive that inflation has come down to 8.7%, it is still far from the Bank of England's target of 2% and, as we have already discussed, the core indicator is not falling as fast as expected.

Referring to the subject of core inflation that we covered in our 7:42 am post. m., Jake Finney, economist at accounting firm PwC, said: “Most worryingly, services inflation, where the Bank of England places particular emphasis on attention, rose from 6.6%. . up to 6.9%.

"This is the highest rate since March 1992 and higher than the 6.7% the Bank of England had expected earlier this month."

With today's announcement and "longer inflationary pressures," he believes the Bank will miss its 2% target by the end of 2024.

"By then, consumer prices could have risen by as much as a fifth," he added.

However, Finney predicts that inflation will continue to fall in the coming months, with another significant drop likely in July, when the energy price guarantee expires.

"At this point, large reductions in wholesale gas prices will start to translate into lower energy prices for UK consumers," he said.


Supermarket inflation will take time to fall - ONS

That's what Grant Fitzner, chief economist at the Office for National Statistics, says in interviews this morning.

"We are no longer in double-digit territory," he told BBC Radio 4. "We have seen reductions in bread, cereals, fish, milk, cheese, eggs, sugar, jam and honey, so that's positive."


“Let's not forget that many supermarkets have contracts in place that can take between six and 12 months to resolve, as those contracts expire, hopefully they renegotiate them to lower prices.

"It will take some time to translate into retail prices."


Jeremy Hunt fires back, as Labor attacks the government

Chancellor Jeremy Hunt responded to the inflation figures.

“The IMF said yesterday that we have taken decisive action to combat inflation, but while it is good that it is now in the single digits, food prices continue to rise very rapidly.

"So as well as helping families with around £3,000 in cost of living support this year and last year, we need to stick to the plan to bring inflation down."

We also received feedback from Shadow Chancellor Rachel Reeves, who said: “As bills rise, families will worry that food prices and the cost of other essentials will continue to rise.

"They will ask why this Tory government continues to refuse to adequately address this cost of living crisis and why it is not introducing a proper tax on the windfall profits of the oil and gas giants."

He said that the mission of the Labor Party was to ensure the highest sustainable growth in the G7 to improve the situation of families.


Inflation is not falling as fast as expected and core inflation is rising; this could mean another rate hike

Core inflation, which excludes energy, food and tobacco prices, rose to 6.8%, the highest level since March 1992.

Excluding these volatile numbers gives us a more accurate idea of ​​what the economy looks like, and the number is likely to worry the Bank of England ahead of its next interest rate decision on June 22.

Of course, we have different inflation before, butdata and finance editor Ed Conway;explains what all this can mean for people...

“The problem is that inflation has not come down as much as many expected.

“The city economists thought it would drop to 8.2%. Perhaps the fact that it is 8.7% means that now the Bank of England has to decide on interest rates.

“Right now they are at 4.5 percent. A lot of people thought if inflation was going down, maybe 8.1 percent, 8.2 percent, or 8.2 percent. This time, the Bank may not need to raise rates further at the next meeting.

"The fact that it is quite high compared to expectations means that they will probably have to raise rates again."


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