UK now only rich country where inflation is rising despite Bank of England interest rate hikes

Today at 3:07 pm on Tuesday, July 4th, 2023

According to recently released data, Britain stands out as the sole affluent nation experiencing an increase in inflation. This suggests that the Bank of England's efforts to raise interest rates have not been as fruitful as those of other countries.

The rate of inflation in the Group of Seven (G7) countries dropped to 4.6 percent in May, declining from 5.4 percent in April, as reported by the Organisation for Economic Cooperation and Development (OECD).

According to the Organization for Economic Cooperation and Development (OECD), the United Kingdom experienced a rise in the rate of price inflation in May. This increase brought the rate up to 7.9 percent from the previous rate of 7.8 percent. Interestingly, the UK was the only country among a group of wealthy nations to see this inflationary uptick.

The Organization for Economic Co-operation and Development (OECD) reported that inflation on a yearly basis decreased in May in the United States, Canada, France, Germany, and Japan.

There are indications that Britain is facing a challenging issue with inflation. Recent data from the Office for National Statistics indicated that core inflation, which excludes the fluctuating prices of food and energy, rose to more than seven percent last month. This represents the highest level experienced in over three decades.

The prices of food have increased by over 18 percent.

The cost of services has also risen by over seven percent in the past year, indicating that the initial surge in prices due to the energy shock is now causing domestic inflation.

According to the ONS, the primary inflation rate stayed the same at 8.7% during the month of May.

Experts have attributed the surge in prices to an unprecedented rise in wages, surpassing seven percent. Meanwhile, critics have strongly criticized businesses for exploiting the situation and maximizing their profits.

The bank's chief, Andrew Bailey, along with the other members of the monetary policy committee, which consists of nine individuals responsible for determining official interest rates in the UK, have increased borrowing expenses for the thirteenth consecutive time, bringing them to a level of five percent.

In the previous month, there was a rise in the rate increases, as the Bank increased its base rate by 50 basis points. Financial markets predict that there will be another similar increase in August, and that the cost of borrowing will reach its highest point at 6.25 per cent.

That would mark the highest rate in over two decades.

There are increasing concerns that Prime Minister Rishi Sunak might not achieve his goal of reducing inflation by 50% to slightly above 5% by the end of the year if price pressures continue to resist interest rate hikes.

Economists believe that the impacts of the Bank's rate hikes are now being delayed in reaching the economy because a majority of homeowners are choosing fixed mortgages over variable contracts.

Countless homeowners are set to transition to new agreements with significantly increased interest rates by the beginning of 2024. Analysts believe this will contribute to lowering inflation by diminishing their ability to spend money.

Moneyfacts, a financial data firm, has announced that the average interest rate on a five-year fixed mortgage has exceeded six percent for the first time in 2021. Similarly, the average rate for two-year fixed mortgages stands at approximately 6.2 percent.