By
Godfrey Benjamin
April 23rd, 2024
Inflation in the UK is still on the rise despite continuous hikes in interest rates and inflation reductions in other G7 countries.
Inflation in the United Kingdom (UK) is still rising despite continuous efforts from the country’s central bank. Data from the Organization for Economic Cooperation and Development (OECD) states that inflation in all other G7 countries is falling.
According to the OECD, G7 inflation dropped from 5.6% in April to 4.6% in May. The organization noted that this reduction, the lowest in more than 6 months, was true of G7 countries outside the UK. The OECD said there are noted reductions in inflation in Japan, Canada, Germany, the US, France, and Italy.
Furthermore, the OECD said inflation dropped in all observed nations in May, from April, excluding the UK, Norway, and the Netherlands. In the UK, consumer prices rose 7.8% between April and May, and 7.9% compared to last year.
Bank of England Still Fighting UK Inflation
The Bank of England (BoE) recently announced an interest rate hike by 50 basis points. The announcement came after the Monetary Policy Committee voted 7-2 in favor, marking the 13th consecutive hike.
The BoE increased rates in response to inflation as the annual consumer price index climbed 8.7% in May, higher than the 8.4% economists had predicted. Core inflation, excluding alcohol, tobacco, and food, also climbed to 7.1% from the 6.8% recorded in April. Back in March, UK inflation was at 10.1% according to the Office for National Statistics, higher than the 9.8% expected by a Reuters poll of economists. UK inflation hit 11.1% in November, the highest level in 41 years.
Speaking on the hike, BoE governor Andrew Bailey said the increase was necessary. Bailey admitted that although the economy is improving, hiking interest rates is important as inflation is “still too high and we’ve got to deal with it.” Bailey warned that any delay in increasing these rates could worsen the economy in the near future.
Despite the poor figures, the International Monetary Fund (IMF) has a bullish outlook on the UK’s inflation. According to the IMF, the UK will likely escape a recession in 2023 and see positive growth this year. However, the IMF warns that although it expects growth, this outlook is “subdued”. Essentially, the Fund does not expect large growth margins. The IMF had previously predicted that growth in the UK would contract by 0.3%
More Hikes Coming?
A Reuters report states that markets predict a 50% chance that the rate would peak at 6.25% this year. The recent hike had pushed rates to 5%.
Generally, the UK’s economy has suffered a few setbacks that may have worsened inflation over time. In addition to Brexit and COVID-19, the country has experienced quite an increase in gas prices because of Russia’s war against Ukraine. Although many countries have suffered their fair share of problems caused by the same factors, the UK is still struggling.
Bailey said while the BoE is not expecting a recession, the rate hike was “absolutely imperative”, and the bank will continue to do whatever is required to reduce inflation.
A BoE forecast puts growth in the UK for 2023 at 0.25%.