The Governor of the Bank of England, Andrew Bailey, expressed concern about high inflation rates in a recent conversation with Jeremy Hunt. In a letter to the Chancellor, Bailey emphasized that domestic inflationary pressures are still significantly elevated.
The consumer prices index (CPI) reveals that price increases remained stagnant at 8.7% in May, compared to April. The Monetary Policy Committee (MPC) warned that inflation is proving more persistent, especially with a tight labor market and unwavering demand.
Retailers and workers are taking steps to protect themselves from rising prices, either by rebuilding profit margins or by requesting higher wages. Bailey also cautioned that the job market remains competitive.
In May, employment growth surpassed expectations, and food prices continue to stay high, adding to the overall inflation rate at a rate of 18.3%, equivalent to two percentage points, as explained to the Chancellor.
While higher interest rates benefit savers, they adversely affect borrowers who must allocate more funds to service debts like mortgages and loans. The bond and mortgage markets have undergone turmoil due to a series of unexpected inflation figures, resulting in the withdrawal of numerous deals by high street banks in the past month.
The MPC acknowledged the significant rise in gilt yields and notable increase in mortgage rates since their last meeting in May.
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