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 fruit 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 start 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 the Government is still on track to halve inflation this year.
The Chancellor said:…
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