Bank of England under pressure as prices shock leaves Britain in slow lane

The Bank of England will be under pressure today to step up the pace of rate hikes after official figures showed Britain still trailing the rest of the G7 in the fight against inflation.

Interest rates are expected to rise for the 13th consecutive time to 4.75 percent when the Bank’s Monetary Policy Committee announces its decision at noon.

But yesterday’s worse-than-expected inflation data from the Office for National Statistics (ONS), which showed inflation stuck at 8.7 percent, has left questions about the magnitude of the increase at a knife-edge.

Financial markets gambled last night that there was a 51 percent chance that rates would rise a quarter of a percentage point to 4.75 percent, versus a 49 percent chance that they would go all the way to 5 percent.

And further increases to 6 percent by the end of the year are on the horizon – something experts fear will trigger a recession.

Yesterday’s May inflation rate was a bitter blow to the Bank of England, which has been rapidly raising rates to try and curb the British price spiral.

Inflation has fallen from its peak of 11.1 percent in October last year, but not nearly as quickly as hoped. It remains more than four times higher than the bank’s 2 percent target.

It is worrying that a measure of ‘core’ inflation – which excludes volatile factors such as energy and food – is rising while the main measure is falling.

It rose to 7.1 percent in May, according to ONS data. Britain’s record in fighting inflation pales in comparison to other major economies and is the highest in the G7.

In the eurozone, inflation has fallen to 6.1 percent and even in Italy – often scorned as a basket by foreign commentators – it is lower than Britain at 8 percent.

America, the world’s largest economy, appears to be on top of the problem after a series of aggressive rate hikes that have pushed inflation to 4 percent.

As a result, the central bank, the US Federal Reserve, was able to hit the pause button when interest rates were raised.

Yet the problem of global inflation – which spiraled last year after Russia’s invasion of Ukraine – has not completely disappeared outside the UK.

Fed Chairman Jerome Powell told a congressional hearing yesterday that “inflationary pressures continue to run high.”

Ruth Gregory, UK deputy chief economist at Capital Economics, said: ‘Inflation in the UK has remained higher than elsewhere as the UK has weathered the worst of both worlds – a major energy shock, like the Eurozone, and labor shortages – even worse than the US.’