Rising inflation continues to grip the United Kingdom, making it stand out as the sole major economy where inflation rates are on an upward trajectory, according to the latest data from the Organization for Economic Cooperation and Development (OECD). This development sharply contrasts with the general trend among the Group of Seven (G7) wealthy nations, where year-on-year inflation fell to 4.6% in May, down from 5.4% in April. This figure represents the lowest level since September 2021.
Most advanced economies, including the U.S., Canada, France, Germany, Italy, and Japan, exhibited a downward trend in annualized inflation in May. However, the UK emerged as a glaring exception. The OECD data revealed that consumer prices across all items in the UK surged to 7.9% in May compared to the previous year, marginally up from 7.8% in April.
This inflationary pressure comes at a time when many major central banks are mulling the end of aggressive interest rate hikes as prices begin to cool. The Bank of England, however, has taken a different path. Last month, it increased interest rates by 50 basis points to 5% — a larger increment than many expected. This represents the 13th consecutive rate hike, propelling the base rate to its highest level since 2008.
The recent rate hike move has intensified worries about a potential mortgage crisis. It marks a stark departure from the approach of other major central banks, which have managed to slow or even halt their interest rate increases.
On a broader scale, the OECD noted that year-on-year inflation as measured by the consumer price index had dropped significantly to 6.5% in May, down from 7.4% in April. This puts headline inflation within the OECD at its lowest level since December 2021. The organization found that between April and May, inflation dipped in all observed countries except the Netherlands, Norway, and the UK.
Inflation rates varied widely across all OECD countries, ranging from less than 3% in Costa Rica, Greece, and Denmark to over 20% in Hungary and Turkey. Core inflation, which excludes volatile food and energy prices, declined at a much slower pace across 33 OECD countries, aligning with recent trends, and stood at 6.9% in May, down from 7.1% in April. Interestingly, energy inflation saw a significant drop, plunging to -5.1% in May year-on-year, compared to 0.7% in April.
In sum, the persistence of rising inflation in the UK amidst global cooling poses a unique challenge for the country’s policymakers and marks it as an outlier among the world’s major economies.
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