Inflation frozen at 8.7% as bank geared to hike interest rates in blow to mortgages

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

“Thirteen years of the Tories and their disastrous mini-budget are damaging our economic security and leaving families worse off.

“Simply continuing on this Tory path of managed decline is not the summit of Labour’s ambition.

“We need a more secure economy, more secure family finances and a plan to help us grab hold of the opportunities before us.

“With a relentless focus on the cost of living, our strong fiscal rules and our mission for growth, that is what a Labour government will bring.”

Chancellor Jeremy Hunt said the government would “stick to its guns” and insisted patience was needed for Bank of England rate rises to curb inflation.

He told broadcasters: “Today’s figures strengthen the case for the government to stick to its guns.

“No matter what the pressure from left, right or centre, we won’t be pushed off course.

“Because if we are going to help families, if we are going to relieve the pressure on people with mortgages, on businesses, we need to squeeze every last drop of high inflation out of the economy.”

He added: “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 but we need to be patient, we need to stick to the course and then we’ll get to the other side.”

Government borrowing more than doubled to £20 billion in May, pushed higher by the cost of mammoth energy support schemes, while public sector net debt reached more than 100% of annual economic output for the first time since 1961, according to official figures.

The Office for National Statistics (ONS) said borrowing in May 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.

The ONS data also showed net debt reached £2.6 trillion as of the end of May, estimated at 100.1% of gross domestic product (GDP).

This is the first time the debt-to-GDP ration has risen above 100% since March 1961, except for during the pandemic, but this was later revised lower.

Core inflation is at its highest level in 31 years, the Office for National Statistics’ chief economist has said.

Grant Fitzner told BBC Radio 4’s Today programme: “I think something that may cause some concern is the continuing rise in what’s known as core inflation – that excludes food, energy, alcohol and tobacco – which has risen in the latest month to 7.1%.

“That’s the highest annual rate in core inflation since March 1992.”

He added: “Goods inflation, of course, has seen big increases over the past year but it’s been gradually heading downwards. Where we’re seeing the increase over recent months has been in service prices, so cafes, restaurants, hotels, etc.

“In the latest month that rose to 7.4%. That is the highest again for quite some time and it’s probably driven at least in part by the increase we’ve seen in wages.

“Service prices are sticky, it can take longer for them to pick up, but likewise longer for them to unwind as well. Certainly, a number of commentators have pointed to some concerns that this means that inflation may be a little bit stickier on the way down than people had previously expected.”

Inflation unexpectedly remained frozen last month on 8.7 per cent, pilling further pressure on the Bank of England to raise interest rates.

Following two consecutive months of falls, rising prices remained the same in April and May and above what economists had predicted earlier in the year.

The Office for National Statistics said rising prices for plane tickets, recreational and cultural goods and services and second-hand cars added the most to inflation.

Costs for motor fuel fell, the ONS said, putting the biggest downward pressures on inflation.