Government could feel the wrath of voterspublished at 08:16 British Summer Time 21 June 2023

08:16 BST 21 June 2023

Nick Eardley
Chief political correspondent

The chancellor’s response to this morning’s figures is to stick to its guns when it comes to a plan for the economy.

Jeremy Hunt said the UK needed to “squeeze every last drop of high inflation out of the economy”.

To do that, he argues spending constraints are needed. That also means continuing to resist the tax cuts some Conservatives are desperate for.

The chancellor is also arguing in interviews this morning that a scheme to help people with mortgages would be a bad idea – because it could make inflation worse.

But the fact prices are still rising at a fast rate is not just bad news for consumers – its bad news for the government too.

Ministers have promised to get inflation down this year, to around 5%. That was previously seen as likely – now there’s more doubt.

The government also knows that it could feel the wrath of voters who are seeing their household income squeezed.

That pain will only be compounded if – as expected – interest rates go up further tomorrow.

Labour said this morning that the government is part of the problem.

The Shadow Chancellor Rachel Reeves argued: “This Tory government can’t get a grip of this problem because they are the problem.“

Image source, Pool

In media interviews this morning, Chancellor Jeremy Hunt has acknowledged there is “enormous pressure” for families with mortgages.

However, he said today’s figures "strengthen the case for the government to stick to its guns".

"We need to squeeze every last drop of high inflation out of the economy,” says Hunt.

But on financial intervention, Hunt says to step in with short-term support “meant inflation stayed higher for longer".

Tom Espiner
Business reporter

Economists had widely predicted a fall in the inflation rate to 8.5% in the year to May, so why did it stay the same?

Airfares, second-hand cars, live music events, and the price of computer games all fed into the rapid pace of price rises.

But this was offset by falls in the price of petrol, and food prices rising not quite so quickly as they have been.

However, so-called "core" inflation - which strips out energy and food prices, along with alcohol and tobacco - was at its highest rate since 1992.

This means the Bank of England - which watches that figure when setting interest rates - will be under more pressure to raise rates again.

The UK's debt pile reached more than 100% of economic output for the first time since 1961 as government borrowing more than doubled in May, official figures show.

The Office for National Statistics (ONS) says net debt reached £2.6 trillion as of the end of May, estimated at 100.1% of gross domestic product (GDP).

Government borrowing soared to £20 billion in May, pushed higher by the cost of energy support schemes. May's borrowing figure was £10.7 billion higher than a year ago and the second-highest May borrowing since monthly records began in 1993.

Economists had predicted borrowing of £19.5 billion for May.

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Image source, Reuters

Labour’s Shadow Chancellor Rachel Reeves has blamed the Conservative government for failing to "get a grip" of inflation.

Reeves sad that "13 years of the Tories and their disastrous mini-Budget are damaging our economic security and leaving families worse off".

No doubt interest rates will rise tomorrowpublished at 07:45 British Summer Time 21 June 2023

07:45 BST 21 June 2023

Faisal Islam
Economics editor

This is a grim number.

Inflation isn’t just stubborn, or sticky. In May, it was stuck at just below 9% - when really it should be falling by now.

International comparisons can be fraught, but they are instructive here, with the most directly comparable US inflation measure closer to 3%, and France and Germany closer to 6%.

The rise in core inflation is a shocker - this is the best insight into underlying inflationary pressures, excluding direct energy and food costs.

The Bank of England watch these figures very closely and there can be no doubt that they will rise interest rates again tomorrow, and probably again after that.

We might even get some votes on the nine-member committee for a larger rise tomorrow, compared to the usual 0.25% increase.

The continuing rise of core inflation - that excludes food, energy, alcohol and tobacco prices – is a cause for concern, the Office for National Statistics chief economist Grant Fitzner tells the BBC's Today programme.

That has risen to 7.1%, the highest annual rate increase since March 1992.

Which factors contribute to core inflation? The increase seen over recent months is in service prices from cafes, restaurants and hotels, says Fitzner.

“That’s probably driven, at least in part, by the increase we’ve seen in wages.”

Cost of living crisis threatens cost of borrowing crisispublished at 07:30 British Summer Time 21 June 2023

07:30 BST 21 June 2023

Dharshini David
Economics Correspondent

Strip out food and energy - the volatile bits impacted by global commodities - and so-called “core” inflation is at its highest level in the UK for more than 30 years. Services inflation is also on the rise.

It’s those figures the Bank of England watches when it’s looking for signs of overheating demand that it reckons it can squeeze - via higher interest rates - to bring inflation down.

So today's figures will heighten expectations of rate rises for longer, with knock-on effects for mortgages. The cost of living crisis is threatening an acute cost of borrowing crisis.

The figures mean inflation overall remains higher and more stubborn in the UK than in the US and EU - as the UK has felt the full force of both the impact of the war in Ukraine on prices of commodities and labour shortages.

And there’s evidence that Brexit is adding to that pain.

Image source, Getty Images

The Liberal Democrats have said May's inflation figures are "worse than expected" - and show the government is "failing miserably to bring inflation down and provide relief for struggling families facing soaring bills".

Lib Dem Treasury Spokesperson Sarah Olney MP said: "Homeowners now face the likelihood of even more interest rate hikes adding to their monthly mortgage payments, all while the chancellor just sits on his hands."

Here's some more detail from the ONS release - it says "core" inflation - which excludes energy, food, alcohol, and tobacco - rose by 7.1% in the year to May.

That's the highest rate since March 1992, the ONS says., external

"Core" inflation is designed to strip out the most volatile elements - and the rate is closely watched by central banks, which set interest rates, such as the Bank of England.

Inflation not coming down as quickly as some hopedpublished at 07:19 British Summer Time 21 June 2023

07:19 BST 21 June 2023

Nick Eardley
Chief political correspondent

The government has made getting inflation down its key economic test.

The fact that inflation is not coming down as quickly as some hoped is bad news for ministers trying to persuade voters the plan is working.

Expect the chancellor to say he won’t change course and that fiscal discipline is more important than ever.

But expect political pressure too.

There is increasing concern at Westminster about interest rates in particular.

Some Tory MPs have urged the government to intervene, perhaps with tax relief on mortgage interest payments.

But that’s something ministers are reluctant to do. The Treasury thinks an intervention could make inflation worse – and keep prices higher for longer.

All the while Labour are ramping up their criticism – blaming the Conservative government for the economic pain many are feeling.

Image source, PA Media

Chancellor Jeremy Hunt has commented on the UK's latest inflation figures.

Hunt says: “We know how much high inflation hurts families and businesses across the country, and our plan to halve the rate this year is the best way we can keep costs and interest rates down.

“We will not hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy, while also providing targeted support with the cost of living."

As per the Office for National Statistics, here's some more detail on that headline inflation figure.

• Rising prices for air travel, recreational and cultural goods and services, and second-hand cars resulted in the largest upward contributions
• Falling prices for motor fuel led to the largest downward contribution
• Prices for food and non-alcoholic beverages rose in May 2023 but by less than in May 2022

Inflation in the UK remained at 8.7% in the year to May, the same figure as April, according to the Office for National Statistics.

Pay increases for many people aren't keeping up with rising prices.

Average weekly earnings were estimated at £603 for regular pay (pay excluding bonuses) in April 2023.

UK wages have risen at their fastest rate in 20 years, excluding the pandemic, raising expectations that UK interest rates will have to rise.

Regular pay increased by 7.2% in the three months to April, though it still lags behind inflation (the rate at which prices rise).

According to the ONS, external, pay when adjusted for inflation fell by 1.3% in the three months to April.

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Tom Espiner
Business reporter

Image source, Getty Images

The Bank of England has been putting up interest rates quite quickly to try to bring down inflation - how fast general prices are rising.

The idea is to make it more expensive to borrow money and encourage people to save more.

If people aren't spending as much, the pace of price rises for goods and services slows down as firms compete for business - that's the theory anyway.

But it's a tough balancing act, especially in a cost-of-living crisis. The Bank doesn't want to slow the economy down too much.

And people with mortgages - nearly 30% of households - are feeling the squeeze more as mortgage rates jump.

Raphael Sheridan
BBC business producer

For leggings and denim company Lovall, based in Cannock in the West Midlands, the recent economic conditions have been challenging.

Container costs trebled before falling back, the raw materials used to make its garments increased, as did the company's warehouse costs.

"It's still really strong despite the current market," says Beth Wood, its head of brand. "We are really lucky that we do have a loyal base. But I think they are being a bit more cautious."

Despite the challenges, Beth says the company has experienced a bumper year, with revenues up 40% compared to last year.

Lovall recently rebranded and has plans - albeit delayed because of Brexit - to expand into Germany and France later this year.

The Bank of England has a target to keep inflation at 2%, but the current rate is still more than five times that.

Its traditional response to inflation rising is to put up interest rates.

This makes borrowing more expensive and can mean some people with mortgages see their monthly payments go up. Some saving rates also increase.

When people have less money to spend, they buy fewer things, reducing the demand for goods and slowing price rises.

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The cost of more than 700 everyday items is gathered by the Office for National Statistics (ONS) to come up with a monthly inflation figure.

The so-called inflation basket, external is constantly updated, recently alcopops were removed and frozen berries were added.

Each month's inflation figure shows how much these prices have risen since the same period last year.

You can calculate inflation in various ways, but the main measure is the Consumer Prices Index (CPI).