Economists sounded the alarm that the Bank of England’s Monetary Policy Committee could be forced to hike rates from 4.5% in June, then possibly again within months, in a bid to further reduce inflation, which dropped to 8.7% in April from 10.1% in March.
While the drop below 10% was welcome, it was less than the City was expecting.
Core inflation (which excludes energy, food, alcohol and tobacco) actually rose by 6.% in the 12 months to April 2023, up from 6.2 per cent in March, which is the highest rate since March 1992.
Paul Dales, chief UK economist at Capital Economics, added: “With inflation proving stickier than the Bank expected, it now seems all-but certain that the Bank will raise interest rates from 4.50 per cent to 4.75 per cent in June and perhaps a bit further in the months after.”
Food and non-alcoholic beverage prices continued to rise in April, at an eye-watering rate of 19.1%, down marginally from 19.2% in March.
James Smith, research director at the Resolution Foundation think tank, said: “The cost-of-living crisis is evolving not ending with surging food prices now taking centre stage.
“Surging food prices are particularly painful for low-income families, three-in-five of whom are already reporting that they are having to cut back on food and other essentials.”
The official figures came a day after the International Monetary Fund warned that interest rates in Britain would likely have to rise further from 4.5 per cent and “remain high for longer” to get a firm grip on inflation.
The Bank of England has raised interest rates 12 times since December 2021 in an attempt to keep price rises, or inflation, under control.
A typical tracker mortgage customer is now paying about £417 more a month while those on a variable rate have seen their costs rise by £266.
Data released on Wednesday shows inflation slowed to 8.7% in the year to April but remains higher than some economists predicted.
It has prompted expectations of a further increase in borrowing costs when the Bank of England’s rate-setting Monetary Policy Committee (MPC) meets in June.
Andrew Montlake, managing director at mortgage brokers Coreco, said: “While on the face of it we have seen a fall in inflation back down to single figures, it is not by quite as much as expected.
He added: “What is more, the important underlying inflation figure has proved to be stickier than envisaged. This has led to a reaction from the markets as they believe the Bank of England may now continue with their policy of rate rises.”
Sushil Wadhwani, a former member of the MPC who is now on Chancellor Jeremy Hunt’s Economic Advisory Council, said markets have indicated interest rates could peak around 5.5%.
He said a lot people are on fixed rate mortgages “and these haven’t adjusted yet”.
“That’s an adjustment that’s yet to come and it’s deeply worrying for all of us,” he added.