Inflation remains flat at 8.7% – credit industry reaction

Fears of a further rise in interest rates were heightened after new data showed the CPI rate of inflation remained stuck at 8.7% in May, the same rate it was in April but worse than the 8.4% expected. Core inflation rose to a 31 year high of 7.1% from 6.8% in the previous month. Services inflation rose to 7.4% in May; goods inflation came in at 9.7% while food inflation dropped to 18.3% from 19%. But the cost of food in supermarkets still rose 0.9% over the month of May. 

Commenting on the inflation figures for May Joanna Elson CBE, Chief Executive of the Money Advice Trust said “Today’s stubborn inflation figures underscore the pressures facing millions of households whose budgets have already taken a battering. And with interest rates likely to rise further, the situation is likely to get harder for many.”

“Food prices and other essential costs remain high – and for those on the lowest incomes who are hit hardest, the choices they are facing are stark.  We are already hearing from people skipping meals to make ends meet.  The Government needs to ensure that the benefits system provides enough to live on to prevent those people most affected from going without essentials.”

 Alastair Douglas, CEO of TotallyMoney said “We’re still way off the Bank of England’s 2% inflation target, meaning prices are still rapidly rising, and people’s finances are still being stretched.”

“Food inflation remains sky high, renters are spending almost a third of their pre-tax wages on housing and tomorrow, homeowners on variable rates will probably find out that their monthly mortgage repayments have been hiked for the thirteenth consecutive time.”

“Bills are a serious burden for one in five adults, and credit card debt is growing. While the government has ruled out support for struggling borrowers, 20 million people remain financially under-served, meaning many will have nowhere else to turn other than high cost, unregulated or even illegal lending — having serious repercussions for years to come.

“The blundering Bank of England needs to get its forecasts right, and the government must work out how it’s going to support those who need it most. And sooner rather than later.”

Simon Webb, Managing Director of capital markets and finance at LiveMore, said “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.”

Adam Oldfield, Chief Revenue Officer at Phoebus Software, said “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.”

Sarah Coles, Head of Personal Finance, Hargreaves Lansdown said “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.”