Inflation data June 2023

May's inflation print is yet another disaster as the headline figure is left unchanged from last month's 8.7%. This comes in higher than what the market had been expecting (8.4%). This hasn't been helped by core inflation, which has risen to a high of 7.1%, pushed by air travel, recreational and cultural goods and services, and second-hand cars. Due to the hotter-than-expected print, it's now extremely likely that the Bank of England will raise rates at tomorrow's meeting, and even possibly by 50bps. Bond yields are now expected to rise to their highest levels since 2008, which will put even more pressure on mortgage rates and an already delicate housing market. The one bright spot, however, is that the price of motor fuel fell in May, while food inflation continues to slow down. Even so, the UK economy remains in big trouble as the Bank of England may have no choice but to trigger a recession by hiking rates rapidly, as robust discretionary spending shows no signs of abating.

Inflation results are becoming irrelevant to construction businesses. Their rise over such a long time has meant we have already reacted. Any viable business that was able to do so will have given their staff pay rises already so the effects are now indeed 'baked in' now. Meanwhile, the interest rates impact on mortgage availability is killing the housing construction sector and any hope of the government meeting its target on new houses being built. Large main contracting firms are going into administration every month, projects are being mothballed causing toxic shocks to the cashflows of entire supply chains throughout the country. RPI prices coming down is all well and good, but if businesses are failing and unemployment starts to rise, the effect will have a far wider effect on the economy.

Stubbornly high inflation, stuck at 8.7% for the year to May, is looking like a 'very British problem'. Spain’s inflation rate is in the low single digits and rate rises were paused in the US after their May figure fell back to 4%. A ‘mortgage time bomb’ is part of the commentary around whether interest rate rises are still the right tool to fight inflation, or are adding to our problems. We have polled over 800 SME business owners and directors this week asking if interest rate rises were working to control inflation – 70% answered No – with 17% saying it was too soon to tell, and 13% backing the rises as working. In their comments, businesses suggested interest rate rises are now doing more harm to the broader economy than good.

An unchanged headline inflation rate of 8.7% for May pours further pressure on the Bank of England. Worse yet, so-called core inflation has risen to 7.1%. These are disastrous figures, with a price/wage spiral helping to embed inflation into the UK economy. The Bank will have to raise the base rate yet again tomorrow, possibly by 0.5 percent. Without a doubt, this is full-blown crisis territory for the housing and mortgage markets.

Andrew Bailey's position looks increasingly precarious. Frankly, he should go. He's been asleep at the wheel ever since inflation reared it's ugly head, and now we're faced with interest and mortgage rates much higher than they needed to be.

With inflation proving more stubborn than first thought, it’s nailed-on that the base rate will increase once again on Thursday. You have to question the effectiveness of these continuous increases and the implications they have on people’s mortgage costs. Is pushing people to breaking point on their mortgage payments really justified simply to get inflation down a little more? Mortgage brokers feel like the grim reaper right now. Constantly having to tell people their biggest debt is about to jump by hundred of pounds a month, and there’s little anyone can do about it.

This latest inflation figure is terrible news for us all and sadly will start another round of mortgage rate crisis for at least the next month. We expect the Bank of England Monetary Committee to increase the base rate at lunchtime tomorrow by at least .5% leading mortgage applicants into very tricky grounds. It's clear that the UK appears to be trading well but with this awful inflation rate still troubling us, the Bank of England is going to keep pulling on the rate increase lever. I think it's time for the government to look out of the box a little and work on other controls that they have within their grasp as beating the UK public over the head with higher interest rates is going to cause some real long-term pain unless they are careful. Troubling times are ahead and we are ready to help guide our clients through this storm.

I expect the Bank of England will be split when they vote tomorrow but they will increase the base rate to curb inflation. The mortgage market is in freefall and what we need now is stability and order to be restored before we reach the point of no return and hurt millions of borrowers, renters and businesses up and down the country. Would this debacle have happened under Mark Carney's watch?

The simple truth is that the only tool the bank of England has to combat inflation at the current time does not work.

It is easy for the government to point at the war in Ukraine and spiralling energy prices and blame these for the pain being inflicted on the average uk household.

However with the core inflation rate at its highest level in 30 years this is pointing to a huge mismanagement of the overall economy.

With 13 rate rises in a row - we now face the very real prospect akin to covid that the cure is perhaps worse than the disease.

How long can we look at a chaotic mortgage market before we take action ?

For mortgage borrowers and the property market, today's inflation data is a huge disappointment and massively concerning. With inflation stubbornly exceeding expectations, pressure on the Bank Of England may prompt even more aggressive interest rate rises to curb inflationary pressures and attempt to meet mythical target figures. Although markets and lenders appeared to have attempted to already price this kind of disappointing figure in this inevitably will now lead to higher mortgage rates, more pressure on borrowers and a negative impact on the property market and prices - which had been holding steady in many areas including Scotland - now seems unavoidable.

The question remains after 13 or so consecutive rate rises from the Bank Of England when will some of this board of "economic experts" accept this is no longer an effective tool against the kind of inflationary pressures we are experiencing and look for alternatives beyond punishing those with mortgages.