London: Britain’s high inflation rate fell by less than expected in April and a closely watched core measure of price growth surged to a 31-year high, according to official data that will cement bets on more Bank of England interest rate hikes.
The consumer price index rose by 8.7 per cent in annual terms in April, leaving Britain with the joint highest rate of inflation among Group of Seven advanced economies along with Italy.
Economists polled by Reuters had forecast that the headline CPI annual rate would drop to 8.2 per cent in April, moving further away from October’s 41-year high of 11.1 per cent.
Earlier this month, the BoE forecast inflation of 8.4 per cent for April.
“With inflation proving stickier than the Bank expected, it now seems all but certain that the Bank will raise interest rates from 4.50 per cent to 4.75 per cent in June and perhaps a bit further in the months after,” Paul Dales, chief UK economist at Capital Economics, said.
The BoE is due to announce its next decision on rates on June 22 and after Wednesday’s data investors were pricing the likelihood of another quarter-percentage point increase in borrowing costs next month at 100 per cent, up from 83 per cent on Tuesday.
Sterling rose against the US dollar and the euro after the figures were published before giving up some of those gains.
Core inflation, which excludes energy, food and tobacco prices and price growth in the services sectors - which is also watched closed by the BoE to gauge the persistence of inflation - both hit their highest rates since March 1992.
Despite the most recent fall, inflation continued to eat into the spending power of workers whose pay is rising by less.
The BoE is worried that the surge in inflation might lead to a lasting upward shift in wage demands and businesses’ pricing strategies, exacerbated by a post-pandemic cut in Britain’s labour force and problems caused by Brexit.
Annual food and drink price inflation - which soared to its highest rate since 1977 in March - cooled only marginally in April to 19.1 per cent from 19.2 per cent.
“Although it is positive that it (inflation) is now in single digits, food prices are still rising too fast,” finance minister Jeremy Hunt said in a statement. “We must stick resolutely to the plan to get inflation down.”