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Soaring cheese, milk and bread prices set to fuel interest rate rise Politics | News

by Markel
in UK News
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Struggling households were dealt another blow yesterday when rocketing food prices sparked predictions interest rates could rise to as much as five percent as the Bank of England battles inflation. The warnings came after figures showed the cost of living rose more than expected last month, mainly thanks to soaring cheese, milk and bread prices and shortages of some fruits and vegetables.

That meant inflation – which measures how fast prices rise – fell to a disappointing 10.1 percent in the year to March.

The figure had been widely expected to dip below 10 percent – ​​until food prices shot up at their fastest rate in 45 years.

It means the rate of inflation is now at the same level it was at the beginning of 2023. It has been in double-digits since September and, in October, reached an eye-watering 41-year high of 11.1 percent.

The Bank of England’s target is just two percent.

Traders say there is a 97 percent chance of an interest rate rise, from 4.25 to 4.5 percent, when the Bank next meets to discuss it on May 11.

Markets are also now anticipating the level will top out at around 5 percent even though, until recently, many experts hoped the base rate had already reached its peak.

Matthew Ryan, of global financial services firm Ebury, said: “We believe this morning’s data has mixed implications.

“On the one hand, sticky inflation raises the possibility that the UK economy could tip into a technical recession in 2023.

“On the other, it more or less guarantees that the Bank of England still has a little way to go in raising interest rates.

“We wouldn’t be at all surprised to see another couple more hikes beyond next month’s meeting.”

Susannah Streeter, of financial services firm Hargreaves Lansdown, agreed that high inflation means another interest rate rise of 0.25 per cent next month is “more likely”.

Despite the disappointing data, Jeremy Hunt yesterday insisted that the government is still on track to halve inflation this year.

The Chancellor said: “These figures reaffirm exactly why we must continue with our efforts to drive down inflation, so we can ease pressure on families and businesses.

“We are on track to do this – with the OBR forecasting we will halve inflation this year.

“And we’ll continue supporting people with cost-of-living support, worth an average of £3,300 per household over this year and last.”

“We’ve nailed our colors to the mast of saying we will get inflation down by half by the end of the year so we’re fully accountable for that,” he told Politico Live:

Some experts warned against ramping up interest rates.

IEA Economics Fellow Julian Jessop said: “There are still many reasons why inflation is likely to fall sharply in the months ahead, including the substantial tightening in monetary and financial conditions.

“Unfortunately, if your only tool is a hammer, every problem is a nail.

“The Bank seems set to raise interest rates further, increasing the risks of overkill.”

Office of National Statistics figures showed as well as bread, cereal and fruit prices rocketing in March, the impact of vegetable shortages also continued to weigh on inflation.

Clothing and footwear prices rose by 7.2 percent year on year, but this represented a slight slowdown against February’s data.

Restaurant and hotel prices rose by 11.3 percent, also slightly slower than the previous month.

All the increases were partially offset by lower fuel costs, with petrol and diesel prices down 5.9 percent against the same month in 2022.

Some economists have predicted inflation will drop more sharply from April as energy prices fall, although the continued £2,500 energy price cap means households will feel little change.

The OBR, the UK’s fiscal watchdog, last month cut its forecasts for inflation, predicting it would be at around 2.9 percent by the end of this year.

Economic forecasters the EY Item Club, said it “still thinks headline inflation will fall at pace this year”.

But its chief economic adviser Martin Beck added: “The recent persistence of underlying price pressures poses a risk to just how quickly inflation will fall.”

Shadow chancellor Rachel Reeves said: “The question for families remains… when will they feel better off under this Conservative government?”


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