Press release

21 Jun 2023 London, GB

Another inflation overshoot should make a June rate rise a done deal – EY ITEM Club comments

Consumer Price Index (CPI) inflation in May came in well above the Bank of England's forecast for the fourth consecutive month, unchanged at 8.7%. The fact that core and services inflation accelerated further means a rate rise from the Bank of England later this week is now all but guaranteed, with a 50bps increase not out of the question.

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James White
James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

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  • Consumer Price Index (CPI) inflation in May came in well above the Bank of England's forecast for the fourth consecutive month, unchanged at 8.7%. The fact that core and services inflation accelerated further means a rate rise from the Bank of England later this week is now all but guaranteed, with a 50bps increase not out of the question.
  • With May's data showing no evidence of an easing in inflation persistence, it's looking increasingly likely that a rate increase this month won't be the last rise in the current cycle. The EY ITEM Club expects another 25bps rate rise in August, with a growing risk of even more rises beyond that

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “CPI inflation was unchanged in May at 8.7%, well above the Monetary Policy Committee's (MPC) forecast (8.3%) for the fourth month in a row. While petrol, energy, and food price inflation softened, this was mitigated by a broad-based acceleration in core inflation, which rose to 7.1% from 6.8%. Just as concerning for the MPC, services inflation – a series the committee often cites as a measure of domestically-generated price pressures – also rose, reaching 7.4%, up from 6.9%. Again, this was above the Bank of England's forecast of 6.8%.

“For sure, movements in some volatile categories (second-hand cars and recreational goods) contributed to May's disappointing outturn. And producer price inflation fell to a two-year low. However, today's data, alongside other evidence from the labour market, means the MPC's criteria for further rate rises appears to have clearly been met. On balance, the EY ITEM Club still expects a 25bps increase this week, but a 50bps rise is now not out of the question. The EY ITEM Club thinks another rate rise in August is likely, and the risk of further increases beyond that is growing.

“However, current market expectations that Bank Rate will peak at around 6% still strike the EY ITEM Club as pessimistic. Inflation should still fall significantly over the rest of this year. The recent weakness in petrol prices should continue, while Ofgem's price cap announcement means that a typical household's annual energy bill will fall by almost 20% from July. That said, tight labour market conditions and strong pay growth will probably temper the pace at which domestically-generated inflationary pressures ease. As a result, the EY ITEM Club doesn't expect inflation to return to the Bank of England's target until late next year.”