ITV News' Joel Hills reports on the latest inflation figures
April was supposed to be kind. Last month, the headline annual rate of inflation did fall sharply, as expected, but by much less than the Bank of England had predicted. Families around the UK will worry about food prices, which are still rising by eye-popping sums. The Bank of England will be more alarmed by what is happening to prices more broadly, across the economy. “Core” inflation - which strips out the direct impact of food, alcohol and energy prices - was resurgent, hitting 6.8% in April - more than three times the Bank’s target rates and the highest level for 31 years. Once again, the Bank, which had 6.3% pencilled in, has been caught off-guard. The ONS numbers show that mobile phone companies and water companies hiked their prices last month. The price of computers, cameras, digital radios, televisions, second-hand cars, breakdown services, and car washes all rose sharply. Core inflation in the UK is the highest in the G7. Services inflation came in stronger than the Bank expected - a pretty clear sign that wages are picking up and that inflation is feeding on itself. “The UK does have a particular inflation problem,” says Michael Saunders, who used to set interest rates at the Bank of England. “Inflation across all of Europe, including the UK, has gone up more and been more persistent than in other counties because we had a bigger energy price shock.
But the UK also had quite a broad-based pick-up in pay growth and that’s been feeding through to stronger costs and therefore higher inflation across a wide range of goods and services”. According to researchers at the London School of Economics, Brexit hasn’t helped.
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They calculate that British households have paid an extra £7 billion to cover the extra cost of trade barriers on food imports from the European Union, forcing up prices further. Too many arrows are pointing in the wrong direction. In the City, if you listen carefully you can hear the sound of analysts scrambling to revise their forecasts. Markets now think an interest rate rise next month is a near inevitability. Bank Rate - currently 4.5% - is expected to rise above 5.25% before the year is out. The full force of the existing increases has yet to be felt. The boss of Barclays predicts that homeowners and renters face a “huge income shock” in the months ahead. Tonight, the government’s borrowing costs are also heading up - yields on bonds returned to levels last seen after Liz Truss’s disastrous mini-budget, last September. In its latest assessment of the UK economy, the IMF said yesterday that history tells us it can sometimes take several years to purge an economy of high inflation. That warning echoed with greater force today. “The economy is going to be set for low growth,” Saunders said. “We may not technically have a recession but low growth and rising unemployment - I things that’s the outlook. And that is going to be tough for many households and businesses”.