UK inflation is proving to be far stickier than hoped, with the headline CPI rate holding firm at 8.7 per cent in the 12 months to May, unchanged on April’s reading, delivering bad news for Britons desperate for some respite from runaway prices rises.
The bigger issue, however, is core inflation – which strips out the more volatile items such as food, energy and tobacco. This jumped to 7.1 per cent in May, the highest rate in 31 years, presenting an even greater problem for the Bank of England - how aggressively to push ahead with its monetary tightening strategy.
The central bank now has a major conundrum on its hands ahead of its next monetary policy meeting, which concludes at noon on Thursday, as its policymakers strive to bring headline inflation back towards its 2 per cent target.
Do they continue with another gentle 25 basis point rise in the hope that previous rate rises have still to bite, but risk it not being enough to prevent inflation becoming embedded in the economy? Or go in all guns blazing with a 50 basis point rise and risk triggering a downturn by delivering a shock to borrowers?
The central bank has come under fire in recent weeks for not acting quickly or aggressively enough to quell Britain’s persistent inflation problem.
If it fails to take affirmative action on Thursday this could cause financial conditions to loosen even further and the pound to weaken, something nobody wants – least of all policymakers at the central bank.
Keeping sterling at its recently stronger levels should help to limit inflation, as it makes imports cheaper.
It’s a delicate balancing act, however, with any further interest rate rises likely to cause more pain for UK mortgage holders at a time when their finances have only just scraped through a cost-of-living crisis.
Britain’s mortgage crisis is now the country’s leading personal finance concern, with the full force of the interest rate rises only hitting first-time buyers and those whose fixed-rate mortgage deals have expired in the past 12 months so far.
The crunch point will come as more people emerge from fixed rate deals over the next few months and years and are forced to absorb significantly higher repayments.
Many Britons locked into fixed-rate deals before the BoE’s cycle of interest rate rises first began in December 2021 – securing rates as low as 1 per cent.
Thursday’s will be the 13th consecutive rate rise and those homeowners are now entering a very different mortgage landscape than the one they left.
The average two-year fixed mortgage rate surpassed 6 per cent this week, with the situation likely to deteriorate further if inflation cannot be brought under control.
The stark reality is that interest rates are now expected to peak at 6 per cent by the end of the year, potentially pushing some households to breaking point as the era of cheap money comes to an abrupt and brutal end.
While mortgage rates have historically been higher, loan sizes are now far greater relative to incomes. As mortgage costs increasingly take up a larger share of consumers’ take-home pay, this could have dire consequences for the economy as people restrict their spending to ensure they can meet their household bills.
The repercussions on the housing market could be equally dire as affordability levels get tested to the max with expectations that house prices may fall more aggressively in the coming months than the minor dips seen so far.
Britain may no longer be expected to be the poorest performer against its global peers in the G7, after the International Monetary Fund sharply upgraded its growth forecast in May, but it is still on track to have the highest inflation rate in the developed world, according to the OECD. This is exacerbated by strong wage growth as employees demand bumper pay rises to help keep pace with rising prices.
The government is now on a mission to “squeeze every last drop of high inflation out of the economy” as it strives to hit Prime Minister Rishi Sunak’s January pledge to halve inflation by the end of the year from the 10.7 per cent it stood at in January.
For that mission to stay on track it requires aggressive action, which is why all eyes are now firmly pinned on Threadneedle Street in the heart of the City of London and Thursday’s interest rate decision.
Alice Haine is the Personal Finance Analyst at Bestinvest, the DIY investment platform and coaching service
The biog
Name: Sarah Al Senaani
Age: 35
Martial status: Married with three children - aged 8, 6 and 2
Education: Masters of arts in cultural communication and tourism
Favourite movie: Captain Corelli’s Mandolin
Favourite hobbies: Art and horseback ridding
Occupation: Communication specialist at a government agency and the owner of Atelier
Favourite cuisine: Definitely Emirati - harees is my favourite dish
UAE currency: the story behind the money in your pockets
The biog
Favourite films: Casablanca and Lawrence of Arabia
Favourite books: Start with Why by Simon Sinek and Good to be Great by Jim Collins
Favourite dish: Grilled fish
Inspiration: Sheikh Zayed's visionary leadership taught me to embrace new challenges.
Company Profile
Founders: Tamara Hachem and Yazid Erman
Based: Dubai
Launched: September 2019
Sector: health technology
Stage: seed
Investors: Oman Technology Fund, angel investor and grants from Sharjah's Sheraa and Ma'an Abu Dhabi
Background: Chemical Weapons
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RESULT
Manchester City 5 Swansea City 0
Man City: D Silva (12'), Sterling (16'), De Bruyne (54' ), B Silva (64' minutes), Jesus (88')
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
Types of fraud
Phishing: Fraudsters send an unsolicited email that appears to be from a financial institution or online retailer. The hoax email requests that you provide sensitive information, often by clicking on to a link leading to a fake website.
Smishing: The SMS equivalent of phishing. Fraudsters falsify the telephone number through “text spoofing,” so that it appears to be a genuine text from the bank.
Vishing: The telephone equivalent of phishing and smishing. Fraudsters may pose as bank staff, police or government officials. They may persuade the consumer to transfer money or divulge personal information.
SIM swap: Fraudsters duplicate the SIM of your mobile number without your knowledge or authorisation, allowing them to conduct financial transactions with your bank.
Identity theft: Someone illegally obtains your confidential information, through various ways, such as theft of your wallet, bank and utility bill statements, computer intrusion and social networks.
Prize scams: Fraudsters claiming to be authorised representatives from well-known organisations (such as Etisalat, du, Dubai Shopping Festival, Expo2020, Lulu Hypermarket etc) contact victims to tell them they have won a cash prize and request them to share confidential banking details to transfer the prize money.
* Nada El Sawy
Bharatanatyam
A ancient classical dance from the southern Indian state of Tamil Nadu. Intricate footwork and expressions are used to denote spiritual stories and ideas.
MATCH INFO
Barcelona v Real Madrid, 11pm UAE
Match is on BeIN Sports
Dust and sand storms compared
Sand storm
- Particle size: Larger, heavier sand grains
- Visibility: Often dramatic with thick "walls" of sand
- Duration: Short-lived, typically localised
- Travel distance: Limited
- Source: Open desert areas with strong winds
Dust storm
- Particle size: Much finer, lightweight particles
- Visibility: Hazy skies but less intense
- Duration: Can linger for days
- Travel distance: Long-range, up to thousands of kilometres
- Source: Can be carried from distant regions
What vitamins do we know are beneficial for living in the UAE
Vitamin D: Highly relevant in the UAE due to limited sun exposure; supports bone health, immunity and mood.
Vitamin B12: Important for nerve health and energy production, especially for vegetarians, vegans and individuals with absorption issues.
Iron: Useful only when deficiency or anaemia is confirmed; helps reduce fatigue and support immunity.
Omega-3 (EPA/DHA): Supports heart health and reduces inflammation, especially for those who consume little fish.
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%3Cp%3E-%20Diriyah%E2%80%99s%201.9km%20King%20Salman%20Boulevard%2C%20a%20Parisian%20Champs-Elysees-inspired%20avenue%2C%20is%20scheduled%20for%20completion%20in%202028%0D%3Cbr%3E-%20The%20Royal%20Diriyah%20Opera%20House%20is%20expected%20to%20be%20completed%20in%20four%20years%0D%3Cbr%3E-%20Diriyah%E2%80%99s%20first%20of%2042%20hotels%2C%20the%20Bab%20Samhan%20hotel%2C%20will%20open%20in%20the%20first%20quarter%20of%202024%0D%3Cbr%3E-%20On%20completion%20in%202030%2C%20the%20Diriyah%20project%20is%20forecast%20to%20accommodate%20more%20than%20100%2C000%20people%0D%3Cbr%3E-%20The%20%2463.2%20billion%20Diriyah%20project%20will%20contribute%20%247.2%20billion%20to%20the%20kingdom%E2%80%99s%20GDP%0D%3Cbr%3E-%20It%20will%20create%20more%20than%20178%2C000%20jobs%20and%20aims%20to%20attract%20more%20than%2050%20million%20visits%20a%20year%0D%3Cbr%3E-%20About%202%2C000%20people%20work%20for%20the%20Diriyah%20Company%2C%20with%20more%20than%2086%20per%20cent%20being%20Saudi%20citizens%0D%3C%2Fp%3E%0A
Titanium Escrow profile
Started: December 2016
Founder: Ibrahim Kamalmaz
Based: UAE
Sector: Finance / legal
Size: 3 employees, pre-revenue
Stage: Early stage
Investors: Founder's friends and Family
MATCH INFO
Manchester City 3
Danilo (16'), Bernardo Silva (34'), Fernandinho (72')
Brighton & Hove Albion 1
Ulloa (20')
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
