The UK’s Consumer Prices Index (CPI) increased by 8.7% in the year leading up to May 2023, according to the Office for National Statistics (ONS).
This figure remained the same as April’s but showed a significant drop from the 11.1% peak reached in October 2022.
The inflation rate for October was the highest recorded since 1981.
In May 2023, the monthly inflation rate was 0.7%, mirroring the same figure from May the previous year.
This stabilisation brings an end to the recent downward trend in UK inflation, which had been steadily declining since the 11.1% high experienced last year.
ONS attributes the persistently high inflation to the rising costs of air travel, recreational and cultural goods.
Meanwhile, the core inflation rate, which excludes volatile elements like energy and food costs, reached its highest level since 1992.
In another development, UK debt surpassed annual GDP for the first time since 1961, pointing to a potentially concerning economic situation.
Prime Minister Rishi Sunak has committed to halving inflation within the year. This ambitious pledge looks increasingly unlikely with the country grappling with economic challenges and high cost of living pressures.
Paul McGerrigan, CEO at fintech broker Loan.co.uk, said: “Headline inflation continues to be an extremely difficult beast to tame, despite the Bank of England’s best efforts with relentless increases in base rate.
“Mortgage borrowers on variable rates will be dreading the MPC’s decision tomorrow, it’s almost inevitable there will be more heartache and rates will go up again. The recent turmoil in the markets has already driven two-year fixed rates up to dangerously high rates for borrowers already struggling with the cost-of-living crisis.
“The Bank must tread carefully. The post-Covid recovery continues to lag behind the US and Europe. Pushing rates too high, could cripple growth and increase the gap further. Fine margins and difficult decisions. Timing is crucial to avoid recession further down the line.”
Further reaction
Adam Oldfield, chief revenue officer at Phoebus Software:
“To see inflation stagnate is not what we wanted, but the most worrying figure is core inflation, which actually rose in May. So, we’re under no illusion that the figure today is enough for the MPC to do anything other than increase rates again.
“Whether this is the right tactic in the long term is well debated, for some it’s like taking a sledgehammer to crack a walnut. However, after the large increase in swap rates last week and the flurry of mortgage rate rises, it is probably safe to say that lenders have already factored in any increase that is announced tomorrow.
“The news yesterday that the Chancellor has summoned banks to an emergency mortgage summit after the Prime Minister said there would be no ‘Covid-like’ help more mortgage borrowers, is telling of itself. Getting the banks together to talk about forbearance is a bit like telling your grandmother to suck eggs, especially after the pandemic.
“With Consumer Duty on the horizon, if they aren’t already, lenders will have to be looking to identify and try to help the most exposed borrowers on their books. Yet, we have a way to go before we hit the eight per cent that was stress-tested into the mortgages that are coming to the end of their fixed terms this year. In theory, borrowers should be able to afford the current increases, but that may not be true in the current cost of living reality.”
Alexandra Loydon, director partner engagement and Consultancy at St. James’s Place:
“Whilst the UK headline inflation rate remains in single digits at 8.7%%, it hasn’t fallen in May and will be small comfort to hard-pressed consumers when the CPI has risen to 7.1%. In all likelihood this could have a significant impact on the Bank of England’s interest rate decision tomorrow.”
“Inflation is putting an increasing strain on families and businesses, but there is no doubt that the Bank of England will continue to keep the option of interest rate rises firmly on the table. Ahead of tomorrow’s decision, there is little scope for easing the pressure on borrowers and it is particularly stark for those on variable rate mortgages. As for investors, they will need to continue to diversify their portfolios to ensure they are as inflation-proofed as they can be and can reduce risk when markets are volatile.”
Simon Webb, managing director of capital markets and finance at LiveMore:
“This stall in annual consumer price inflation, remaining at 8.7% in May, means there is still a long way to go to reach the government’s 2% target.”
“We hoped inflation would have gone down as energy prices have been falling in recent months and now food price inflation appears to be slowly following, although it is still very high at 18.3%, down from 19% in April.”
“But core consumer price inflation, which doesn’t include food and energy prices, has risen for the third consecutive month to 7.1% from 6.8%. Inflation is key for the Bank of England to consider when deciding on the base rate so it looks inevitable there will be a rise tomorrow following the Monetary Policy Committee’s meeting.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services:
“This is a disaster. With CPI having stayed the same and core CPI rising, we can expect to see gilt yields spike as investors look for higher returns from government debt. This spells terrible news for the property market because the Bank of England will be under enormous pressure to hike rates tomorrow, almost certainly by 0.50%.
“The knock-on effect is mortgage rates will continue to soar and the pain for households will intensify. With mortgage rates already at the most painful level since the 90s, we can expect a slowdown in the property market and house prices are well and truly in the crosshairs.”
Gareth Davies, director at Southampton-based broker, South Coast Mortgage Services:
“With inflation proving more stubborn than first thought, it’s nailed-on that the base rate will increase once again on Thursday. You have to question the effectiveness of these continuous increases and the implications they have on people’s mortgage costs.
“Is pushing people to breaking point on their mortgage payments really justified simply to get inflation down a little more? Mortgage brokers feel like the grim reaper right now. Constantly having to tell people their biggest debt is about to jump by hundred of pounds a month, and there’s little anyone can do about it.”
Justin Moy, founder at Chelmsford-based mortgage broker, EHF Mortgages:
“This is a disaster for inflation and the government this morning, and pretty much guarantees a 0.5% increase in base rate this week. The Bank of England has no other tools or means to attempt to reduce inflation, and lenders have already priced their products for this.
“The fear of god has already been put into borrowers this month, and there are plenty of panicking borrowers already this morning in my inbox screaming for help.”
Craig Fish, managing director at London-based mortgage broker Lodestone:
“So the Bank of England’s program of interest rate rises is not having the desired effect on inflation. Even more worrying is that core inflation is increasing. Surely now is the time to take stock, change tactics and stop these increases, as they aren’t working.
“The Bank of England and Government are on the brink of a mortgage and property market timebomb. The future of the economy is of vital importance and should be given more consideration. Tackling inflation is a marathon, not a sprint. I now fear there may be a 0.5% increase in the base rate tomorrow.”
John Choong, an equity and markets analyst at InvestingReviews.co.uk:
“May’s inflation print is yet another disaster as the headline figure is left unchanged from last month’s 8.7%. This comes in higher than what the market had been expecting (8.4%). This hasn’t been helped by core inflation, which has risen to a high of 7.1%, pushed by air travel, recreational and cultural goods and services, and second-hand cars.
“Due to the hotter-than-expected print, it’s now extremely likely that the Bank of England will raise rates at tomorrow’s meeting, and even possibly by 0.50%. Bond yields are now expected to rise to their highest levels since 2008, which will put even more pressure on mortgage rates and an already delicate housing market.
“The one bright spot, however, is that the price of motor fuel fell in May, while food inflation continues to slow down. Even so, the UK economy remains in big trouble as the Bank of England may have no choice but to trigger a recession by hiking rates rapidly, as robust discretionary spending shows no signs of abating.”
Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages:
“The persistent 8.7% CPI inflation, coupled with rising core inflation, was certainly not the news we hoped for. It almost certainly signals an impending increase in the base rate tomorrow. Our hope is that the Bank of England will restrict its actions to a modest hike, preferably no more than 0.25% given this data. This is not the data the mortgage market needs.”
Mark Grant of Gloucester-based business finance broker, The Business Finance Branch:
“Stubbornly high inflation, stuck at 8.7% for the year to May, is looking like a ‘very British problem’. Spain’s inflation rate is in the low single digits and rate rises were paused in the US after their May figure fell back to 4%.
“A ‘mortgage time bomb’ is part of the commentary around whether interest rate rises are still the right tool to fight inflation, or are adding to our problems.
“We polled over 800 SME business owners and directors this week asking if interest rate rises were working to control inflation. 70% answered No, with 17% saying it was too soon to tell, and 13% backing the rate rises as working. In their comments, businesses suggested interest rate rises are now doing more harm to the broader economy than good.”
Gary Bush, financial adviser at the Potters Bar-based MortgageShop.com:
“This latest inflation figure is terrible news for us all and sadly will start another round of mortgage rate crisis for at least the next month. We expect the Bank of England Monetary Committee to increase the base rate at lunchtime tomorrow by at least 0.5%, leading mortgage applicants onto very tricky ground.
“It’s clear that the UK appears to be trading well but with this awful inflation rate still troubling us, the Bank of England is going to keep pulling on the rate increase lever. I think it’s time for the government to look out of the box a little and work on other controls that they have within their grasp as beating the UK public over the head with higher interest rates is going to cause some real long-term pain unless they are careful. Troubling times are ahead.”
Rohit Kohli, director at Romsey-based mortgage broker, The Mortgage Stop:
“The inflation figures released this morning have stuck at May levels, which is bad news for everyone. This means that the Bank of England will almost certainly raise interest rates tomorrow, the only question is by how much. It is hoped that lenders have already factored in this potential rate increase, as there have been significant increases in rates over the past month.
“This could bring stability to swap rates and prevent frequent changes to lenders’ products. However, if markets become unsettled due to this morning’s inflation figures and swap rates begin to rise again, we may see further rate increases and falling house prices. The Government must take tangible steps to support rising costs and spiralling interest rates, rather than just talking about halving inflation by the end of the year.”
Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com:
“An unchanged headline inflation rate of 8.7% for May puts further pressure on the Bank of England. Worse still, core inflation has risen to 7.1%. These are disastrous figures, with a price/wage spiral helping to embed inflation into the UK economy. The Bank will have to raise the base rate yet again tomorrow, possibly by 0.5%. Andrew Bailey’s position looks increasingly precarious. Frankly, he should go. He’s been asleep at the wheel ever since inflation reared its ugly head, and now we’re faced with interest and mortgage rates much higher than they needed to be.”
Bob Singh of Uxbridge-based mortgage broker, Chess Mortgages:
“This was probably the least favourable outcome. The only worse thing would have been an increase. Static inflation despite recent rate rises paves the way for further increases in the base rate tomorrow. An increase of 0.5% now looks on the cards and this will add to the recent volatility we have been seeing lately in the mortgage market.”
Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco:
“The latest inflation data is set to upset an awful lot of people, leading to a new set of rates rises that will compound the pain of a cost of living crisis on the public. A further rise in Bank of England base rate is a nailed-on certainty, and there is now a real possibility they could panic and increase by a further 0.5% straight to 5%.
“The Bank has one job to do and it is painfully clear that the tool they are currently using is a blunted instrument against inflation that is now endemic. Rather than keep doing the same thing, they should pause for thought and look at a different approach before they inflict real harm on the economy and on people’s livelihoods.”
Amit Patel, adviser at Welling-based mortgage broker, Trinity Finance:
“I expect the Bank of England will be split when they vote tomorrow but they will increase the base rate to try to curb inflation? The mortgage market is in freefall and what we need now is stability and order to be restored before we reach the point of no return and hurt millions of borrowers, renters and businesses up and down the country. Would this debacle have happened under Mark Carney’s watch?”
Matthew Jackson, director of Salisbury-based mortgage broker, Mint FS:
“The simple truth is that the only tool the Bank of England has to combat inflation at the current time does not work. It is easy for the Government to point at the war in Ukraine and spiralling energy prices and blame these for the pain being inflicted on the average UK household.
“However, with the core inflation rate at its highest level in 30 years, this is pointing to a huge mismanagement of the overall economy. With 13 rate rises in a row, we now face the very real prospect akin to Covid that the cure is perhaps worse than the disease. How long can we look at a chaotic mortgage market before we take action?”
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“Core inflation rose again, to its highest rate in over 30 years. It keeps the pressure on for rate hikes, which may spook the market, and spell more bad news for remortgagers. Meanwhile, the essentials continued to get more expensive at an alarming rate, so that even those without mortgage woes face increasingly difficult spending decisions.
“We’re in the uniquely unfortunate position of having the same kind of wage hikes as the US, and the same kind of energy price rises as Europe – so we’re enduring the worst of both worlds, and facing higher and stickier inflation than elsewhere. It means that even as some of the most alarming price rises ease off for things like food and energy, we’re stuck with core inflation that’s on the march.
“For those of us wrestling with higher prices, there is some hope on the horizon. Lower energy costs will eventually feed into prices across the board, and we should see the pain at the supermarket subside a little in the coming months. However, in an awful lot of cases this isn’t going to bring prices down, they’ll just get more expensive more slowly. It means the pressure on our household finances isn’t going anywhere in a hurry.”
