Please see the below article from EPIC Investment Partners providing their Daily Update on the UK Inflation Shock. Received yesterday 21/06/2023.
UK inflation surprised to the upside for the fourth month in a row this morning, increasing the pressure on the Old Lady to accelerate interest rate hikes. CPI rose 8.7%yoy last month, the same as April and well above the 8.4%yoy eyed, with the month-on-month printing 0.7%, again above the eyed 0.5%, although this was lower than the previous of 1.2%.
However, core inflation, which strips out food and energy prices, accelerated to 7.1%yoy, again well above economists’ expectations of 6.8%yoy, to the highest level since the year Basic Instinct was released. This will be of particular concern to the BoE, as core inflation, one of the measures closely watched by the committee, continues to soar as other countries start to see it fall.
The Office for National Statistics said in its statement following the release: “Rising prices for air travel, recreational and cultural goods and services, and second-hand cars resulted in the largest upward contributions to the monthly change in both the CPIH and CPI annual rates”. It went on to add: “Live music events and computer games also contributed to inflation remaining high. These were offset by a fall in the cost of petrol. Food price inflation also remains high, but the rate has eased slightly.”
We got the obligatory two-pennies-worth from the Chancellor, who said: “If you look at what’s happening in other countries, you can see that rises in interest rates do bring down inflation over time. That will happen here, but we need to be patient, we need to stick to the course and then we’ll get to the other side”.
So, now attention turns to the BoE tomorrow. After 12 consecutive hikes, a 25bp rise is already nailed on. However, the market is now pricing in a 50% chance of a 50bp hike, and currently pricing an interest rate peak of 6% by December.
In a separate report, the ONS revealed that the government debt has now exceeded 100% of the GDP, marking the first time this has occurred since 1961. The government borrowed GBP20bn in May, beating forecasts. The deficit for the month, the second highest since modern records began in 1993, rose from GBP9.4bn last year. The increase was driven by cost-of-living payments, including energy subsidies and higher staff costs.
Rishi Sunak’s promise to restore health to public finances and cut inflation looks increasingly like a pipe dream.
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Alex Clare
22/06/2023