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UK’s stubborn inflation fails to fall, turning up heat on Bank of England

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11 months ago

June 21, 2023

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UK's stubborn inflation fails to fall, turning up heat on Bank of England

British inflation defied expectations of a slowdown to hold at 8.7 per cent in May, putting yet more pressure on the Bank of England a day before it is predicted to raise interest rates for the 13th time in a row to tame stubborn price growth.

Markets increased their bets on further rate rises following Wednesday’s official figures, which showed underlying inflation rose to its highest since 1992.

The headline figure means British inflation is once again the fastest of any major advanced economy.

The numbers are also uncomfortable for Prime Minister Rishi Sunak – who has pledged to halve inflation over the course of this year before a probable 2024 election – and are likely to increase mortgage costs for millions of homeowners.

Economists polled by Reuters had forecast that the annual consumer price inflation rate would drop to 8.4pc in May, moving further away from October’s 41-year high of 11.1pc.

“May’s CPI figures ratchet up the pressure on the Monetary Policy Committee to increase Bank Rate substantially further over the coming months,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said.

Sterling briefly jumped against the US dollar and the euro after the figures were released and two-year government bond yields – which are sensitive to interest rate expectations – rose to their highest since July 2008.

Markets now see a 40pc chance that the BoE will raise interest rates by half a percentage point to 5pc on Thursday, rather than the quarter-point move previously expected. They see a 60pc chance of rates reaching 6pc by December.

“Today’s figures strengthen the case for the government to stick to its guns,” finance minister Jeremy Hunt told reporters.

“If you look at what’s happening in other countries, you can see that rises in interest rates do bring down inflation over time, that will happen here,” he added.

British inflation started to pick up in 2021, when many economies faced supply-chain bottlenecks as they emerged from the COVID-19 pandemic, and accelerated sharply after Russia invaded Ukraine in February 2022, sending natural gas prices soaring across Europe.

Inflation has been slower to fall in Britain than elsewhere, however, partly due to the timing of energy subsidies, but increasingly too as a result of big price rises apparently becoming embedded across swathes of the economy.

The Office for National Statistics said core inflation – a measure which excludes volatile food, energy, alcohol and tobacco prices, and which the BoE views as a good guide to underlying price pressures – unexpectedly rose to 7.1pc from 6.8pc, its highest since March 1992.

Another measure of underlying pressures, services price inflation, which is heavily influenced by fast-rising wages and Britain’s tight post-pandemic job market – also reached its highest since 1992 at 7.4pc.

“The cost of airfares rose by more than a year ago and is at a higher level than usual for May,” Office for National Statistics chief economist Grant Fitzner said. “Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high.”

Food and drink price inflation dropped slightly to 18.3pc from April’s 19.0pc.

Paul Dales, chief UK economist at Capital Economics, said he now forecast that the BoE would raise interest rates by half a percentage point on Thursday after the latest numbers.

“The problem is that the recent surge in core inflation and the re-acceleration in wage growth shows that domestic inflationary pressures are still strengthening. This suggests the Bank may have more work to do than the Fed or ECB,” Dales said.

Last month the BoE forecast inflation would drop to just over 5pc in the final quarter of this year and fall below its 2pc target in early 2025.

There may be some relief on the horizon, however, as producer price inflation slowed much more sharply than economists had expected.

Prices charged by manufacturers rose by 2.9pc in the 12 months to May, down from an increase of 5.2pc in April and the smallest rise since March 2021.

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Chinese firm aims to expand investments in Pakistan, shows interest in mining sector

Published

3 days ago

May 17, 2024

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Chinese firm aims to expand investments in Pakistan, shows interest in mining sector

A notable Chinese company has expressed keen interest in expanding its investment in Pakistan, in yet another sign of investor confidence boost in the leadership of Prime Minister Shehbaz Sharif.

A delegation from Chinese firm MCC Tongsin Resources led by its Chairman Wang Jaichen called on PM Shehbaz here on Friday.

The premier invited the Chinese company to invest in Pakistan’s mining sector and manufacturing of export goods.

Shehbaz assured the delegation that his government would extend all-out facilitation to the company from minerals exploration and processing to the export of goods.

The PM instructed the relevant federal ministers and officers to continue consultation with the Chinese firm, taking the Balochistan chief minister, provincial departments and stakeholders on board.

The delegates reposed trust in PM Shehbaz’s leadership, and expressed keen interest in enhancing their investment in Pakistan’s mining and minerals sectors.

The delegation briefed Prime Minister Shehbaz about the construction of a mineral park in Pakistan and their future investment plans.

The premier welcomed the Chinese firm and highlighted the priority steps by his government to promote foreign investment in Pakistan.

He said that being a time-tested friend, China supported Pakistan in every difficult hour for which the Pakistani nation was grateful to the leadership and people of China.

Federal ministers Ahad Khan Cheema, Dr Musaddik Malik, Rana Tanveer Hussain, Jam Kamal Khan and relevant senior officers attended the meeting.

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Business

Govt jacks up power price by Rs1.47 per unit

Published

3 days ago

May 17, 2024

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Govt jacks up power price by Rs1.47 per unit

The government on Friday increased the electricity tariff by Rs1.47 per unit.

According to Nepra sources, the collection from consumers will take place in August, September, and October.

The electricity companies had requested the funds as part of the third quarter adjustment for 2023-2024, seeking Rs 31.34 billion under capacity charges.

Sources said that Rs5.57 billion were requested for operation and maintenance costs, and Rs12.38 billion were requested for the transmission and distribution impact under monthly fuel cost adjustment.

Previously, Nepra had completed the hearing on the electricity companies’ request under the quarterly adjustment.

Nepra approved the Power Division’s request, allowing an increase of Rs 1.45 per unit in electricity prices.

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Business

Hong Kong allows China’s digital yuan to be used in local shops

Published

3 days ago

May 17, 2024

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Hong Kong allows China's digital yuan to be used in local shops

Hong Kong will allow mainland China’s pilot digital currency to be used in shops in the city, the head of its de facto central bank said on Friday, marking a step forward for Beijing’s efforts to internationalise the yuan amid rising geopolitical tensions.

The programme, backed by Beijing, will allow mainland Chinese and Hong Kong residents to open digital yuan wallets via a mobile app developed by China’s central bank and will permit them to make payments in retail shops and some online stores in Hong Kong and in mainland China.

Transactions using e-CNY, predominantly for domestic retail payments in China, hit 1.8 trillion yuan ($249.27 billion) as of end of June 2023, with 120 million digital wallets opened, according to the latest disclosure from China’s central bank.

Using the wallet, users can make payments at over 10 million merchants in 17 provinces and cities in the mainland.

Each wallet used in the city will be subject to a balance limit of 10,000 yuan, with single transactions and daily payments capped at 2,000 yuan and 5,000 yuan, respectively, officials from the Hong Kong Monetary Authority said.

Peer-to-peer transfers will not be allowed at the moment, according to the HKMA.

“By expanding the e-CNY pilot in Hong Kong .. users may now top up their wallets anytime, anywhere without having to open a mainland bank account, thereby facilitating merchant payments in the mainland by Hong Kong residents,” HKMA Chief Eddie Yue said.

Currently, users of other digital yuan wallets such as those operated by Ant Group and Tencent can make payments in the city.

Industrial and Commercial Bank of China, Bank of China Ltd, China Construction Bank Corp and Bank of Communications Co have been selected as e-CNY wallet operators.

The yuan’s use in global finance remains low, though it has shown steady increases.

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