Markets are in turmoil as UK inflation proves more stubborn than expected

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A smaller-than-expected fall in headline inflation in the UK has led financial markets to forecast higher interest rates, while soaring food prices mean even more distress for families grappling with the cost-of-living crisis.

According to official data this morning, April’s CPI fell to 8.7 percent from 10.1 percent as last year’s energy price increases were off-year. However, core inflation, which strips out volatile elements, actually rose to 6.8 percent from 6.2 percent.

The outlook aligns with the latest thinking from the IMF, which yesterday warned that inflation is likely to stay above the Bank of England’s 2% target into mid-2025, six months longer than last month’s forecast, even as the fund said above revised its growth forecast and said the UK will now avoid a recession this year.

Better-than-expected CPI numbers have put the BoE back in the spotlight after Governor Andrew Bailey told a parliamentary committee yesterday that the central bank had “very big lessons to learn” from its forecast failures.

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Food prices, meanwhile, remain near a 45-year high, falling only slightly to 19.1 percent from 19.2 percent. As the rise in energy prices slows, the problem becomes the biggest contributor to the cost-of-living crisis.

Chancellor Jeremy Hunt this week increased pressure on the food sector to tackle the problem, meeting with food manufacturers and competition authorities yesterday. The government has rejected the idea of ​​price controls modeled on European competitors.

Unsurprisingly, then, the Brits are second in the murky league to the Swedes, with little confidence that inflation will return to normal levels anytime soon. Other drags include a record rise in apartment rents as higher borrowing costs and a shortage of real estate push prices higher.

The desperation is shared by the financial markets. The FTSE fell and UK bond markets sold off on inflation news, with traders now expecting interest rates to peak at around 5.3% by year-end. The yield on two-year government bonds hit 4.34 percent, the highest level since the turmoil caused by then-Chancellor Kwasi Kwarteng’s “mini budget”.

The BoE has admitted that the country is caught in a wage-price spiral and looks to the lessons of the 1970s and 1980s, but talk of the country becoming ‘the sick man of Europe’ again is perhaps an exaggeration .

But while UK inflation remains twice the US and significantly higher than the eurozone, criticism of the BoE’s government and strategy is likely to linger for a while.

Search our global inflation tracker to see how your country compares.

Worth knowing: Economy in Britain and Europe

The opposition British Labor Party agreed to use force retirement plans invest in a new £50bn growth fund to increase the availability of capital for fast-growing companies.

The European Central Bank warned that rising risks at “shadow banks” such as hedge funds, pension funds and insurers mean a growing possibility that financial market shocks could trigger a broader crisis.

The German coalition The government of the SPD, Greens and FDP parties is in crisis over proposals to ban gas boilers. The plan, one of the Greens’ pet projects and a cornerstone of their climate agenda, is being held up by the FDP.

The EU internal market turns 30 this week. Former European Commissioner and Italian politician Mario Monti says the cornerstone of EU integration must not be neglected in the quest for strategic autonomy and economic security.

Worth knowing: world economy

US investors are betting that the Federal Reserve will keep rates higher and longer than originally expected. Minutes of the Fed’s last monetary policy meeting are expected at 2:00pm ET/7:00pm London time today and should reveal the rationale behind the further quarter point gain earlier this month.

The rush for it gold Inflation among the wealthy is being mirrored by emerging market central banks, keeping the price near its all-time nominal high of $2,072 an ounce.

Global production of cargo containers has slumped as demand for goods falls after the easing of pandemic restrictions. The excess of containers threatens to overwhelm ports in China, where up to 95 percent of the world’s containers are stored.

Worth knowing: business

British banks, tech companies and telecoms providers are joining forces in a new body to tackle the problem scams, the most common type of crime in England and Wales. The launch of Stop Scams UK follows criticism that the government’s new scam strategy is too weak to meet the scale of the challenge.

private equity Groups are selling shares in portfolio companies at a discount, a sign that they do not expect stock market valuations to return to previous highs anytime soon.

tick tock has restructured its e-commerce business to refocus on markets like the UK and US as it struggles to export its livestream shopping model outside of China.

The head of Boeing Hopes for new climate-friendly biofuels were dashed with the statement “never reach the price of kerosene”. Sustainable aviation fuels currently account for less than 1 percent of global consumption.

Large wealth management groups are pushing again fixed income investments offers higher yields after a “catastrophic” spell for bonds last year. A steep rise in US interest rates had caused bond prices to plummet, but has now resulted in Treasury yields higher than for most years over the past decade.

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