Chancellor denies UK has an inflation problem as markets bet on another rate rise
ITV News business and economics editor Joel Hills explains
Up like a rocket, down like a feather. The latest figures from the Office of National Statistics will increase the anxiety that inflation in the UK is feeding itself.
The headline annual rate of Consumer Price Inflation - which the Bank of England is tasked with keeping pegged at 2% - eased slightly to 10.1% in March, but a larger fall was expected.
The impact of the surge in energy prices is thankfully fading but annual food price inflation rose to 19.1% last month - the highest level since August 1977.
Of greatest concern, what’s called “core” inflation - which strips out food and energy prices - remained at 6.2%. This is stubbornly high and suggests price rises are broad-based across the economy.The UK has been living with double-digit (10% plus) inflation for seven months now. The contrast with other countries looks increasingly stark.
High inflation has been a global issue but all of the G7 nations - The United States (5%), Canada (5.2%), France (5.7%), Germany (7.4%), Italy (7.7%) and Japan (3.3%) - now have significantly lower headline rates.
Chancellor Jeremy Hunt says although the UK's core inflation is higher than other G7 countries, it is a "common problem that we are all facing"
“This is a common problem that we are all facing,” insisted the chancellor this morning, pointing out that food price inflation in Germany is running at 20%.
The chancellor said: “When I talk to my colleagues at the International Monetary Fund, everyone is very clear that the UK is on the right track to focus on bringing down inflation and if we do that we can get through this very difficult period.“
Jeremy Hunt said he thought the government’s pledge to halve inflation by the end of 2023 (made when the headline rate stood at 10.7%) would still be met.
Inflation is currently five-times the government's target, and consumers are feeling the pinch. Chris Choi has been tracking the battle against rising prices
There are important differences between the experiences of different countries. The USA, Canada and Japan have not been hit by the wave of gas and electricity price rises that European countries have faced.
In the UK, energy bills went up more than in European Union countries because some offered bigger subsidies and others don’t peg electricity prices to the price of gas.
The UK labour market has also been tighter than in the EU - we are almost unique in having a smaller workforce today than we did before the pandemic - so pay growth has been higher.
The here and now is grim and the UK currently looks like a bit of an outlier but that picture could quickly change.
Capital Economics calculates that the headline rate of inflation will fall by at least 2.9 percentage points next month as last April’s colossal 47.5% rise in energy bills drops out of the twelve month annual comparison period.
At some point slightly lower market prices for a range of commodities - oil, gas, wheat, barley, maize, rice - will be felt by consumers when they shop for food and by businesses more widely.
“The trends between the countries are very similar,” says Kathryn Keane, an economist at the Office for National Statistcs. “The UK is not wildly out of step."
Inflation is falling but it is falling more slowly than the Bank of England expected (it had 9.2% pencilled in for March) and persistence is a problem.
Yesterday, investors thought there was an 80% probability of an interest rate rise next month. This morning that rose to 99%.
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