UK inflation remained at 8.7% in May, worse than the 8.4% expected, increasing pressure on the Bank of England to raise interest rates.
Wednesday’s data marked the fourth month in a row that price rises exceeded forecasts, adding to the gloom affecting rate-setters, the Rishi Sunak government and many households.
The BoE is set to raise rates on Thursday by at least 0.25 percentage points to 4.75%, but traders are now putting the odds of a bigger hike of 0.5 percentage points at 40% and forecast rates to peak at 6 % at the beginning of next year.
Despite expectations of higher interest rates, sterling fell 0.4% against the dollar to $1.271 on growing recession fears.
“We have an inflation problem that is unrelated to economic growth,” said Lynn Graham Taylor, senior rate strategist at Rabobank. “The market says the Bank of England will have to push the UK economy into recession to deal with this.”
Analysts said there was almost no good news in the inflation data. Core inflation, which excludes volatile food and energy prices, rose again in May to 7.1% from 6.8% the previous month, the highest rate since March 1992. Services prices also rose 7.4% , which is also the highest rate in more than 30 years.