No decrease in inflation as it remains at 8.7%
The rate of price rises has remained at 8.7% despite expectations of a fall, according to official figures.
The Office for National Statistics (ONS) announced the consumer price index measure of inflation stood at 8.7% in the year up to May, the same as the rate in April.
A slight decrease, to 8.4%, had been expected by economists. It puts the government’s pledge to halve inflation this year in doubt.
The rate has been kept high due to the rising cost of second-hand cars, live music events and computer games, the ONS chief economist said, though they were partially offset by the fall in petrol prices. More expensive flights were also partially to blame, the ONS said.
As a result, interest rate projections have increased and the base rate is expected by investors to peak at 6% in March next year but could reach the new high as soon as December.
Investors now expect the Bank will maintain that high well in to next summer.
High interest rates mean more expensive borrowing with more costly mortgage bills likely.
The pain will come before rates reach the high as lenders price in the projections in to the products they have on the market. The interest rate on the average two-year fixed mortgage already reached 6.01% earlier this week.
Chancellor Jeremy Hunt said the government will make no policy changes in response to the news.
“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,” he said.
“We will not hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy, while also providing targeted support with the cost of living.”
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Not good.
Not good at all.
The last few months of inflation data have had a dreary and repetitive rhythm to them.
Economists predict the rate at which prices are rising will finally begin to fall, and fast. Then the official data comes in and it turns out prices are not falling as fast as predicted. And then everyone gets depressed.
That pattern repeated itself today.
“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,” Hunt added.
There’s been an increase in another measure of inflation being watched by the Bank of England – core inflation, which excludes volatile categories including fuel and food.
That rise bucked expectations and now stands at 7.1%, a 31-year high and up from 6.8% last month. Not since March 1992 was the rate of core inflation so high.
It was forecast to remain stagnant at 6.8%.
Food inflation came down slightly to 18.3% from 19.1% last month, the ONS said.
The Bank of England has undertaken a programme of interest rate rises to bring inflation down to 2% and Wednesday’s figure will be closely watched by rate-setters ahead of the latest expected rise on Thursday.
Inflation began to increase in late 2021, when supply chain problems linked to COVID lockdowns and the associated worker shortages meant demand for goods could not be met.
Russia’s invasion of Ukraine exacerbated the problem as many countries, particularly those in Europe, scrambled to find other energy sources and reduce their use of Russian gas, which subsequently pushed up the cost of energy and many other goods.
Four people have been arrested by police investigating cyber attacks targeting M&S, Co-op and Harrods.
A 20-year-old woman and two males, both aged 19, and a male aged 17, were detained in London and the West Midlands this morning as part of a National Crime Agency (NCA) operation.
They were arrested at their homes on suspicion of Computer Misuse Act offences, blackmail, money laundering and participating in the activities of an organised crime group.
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Electronic devices were seized from the suspects and are currently being analysed by forensic experts.
M&S halted online orders, and shelves were empty in shops after the cyber attack on the retailer earlier this year.
The initial hack into the retailer’s systems took place in April through “sophisticated impersonation” involving a third party.
Disruption is expected to continue at the retailer until the end of this month.
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Mickey Carroll in May answered why M&S cyber attack was so bad.
The Co-op and Harrods were also subsequently targeted by hackers.
Paul Foster, head of the NCA’s National cybercrime unit described the arrests as a “significant step” in their investigation, which remains “one of the Agency’s highest priorities”.
He added: “…our work continues, alongside partners in the UK and overseas, to ensure those responsible are identified and brought to justice.”
The National Crime Agency is keen to “signal” to “future victims” the “importance of seeking support and engaging with law enforcement”, stating that “the NCA and policing are here to help”.
The NCA has also thanked M&S, Co-op and Harrods for their support in their investigations.
The arrests, which took place early on Thursday morning, were supported by officers from the West Midlands Regional Organised Crime Unit and the East Midlands Special Operations Unit.
Earlier this week, the chairman of M&S told MPs that the hack had been “traumatic” and like an “out-of-body experience”.
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Archie Norman, however, refused to be drawn on whether the retailer had paid any ransom.
“We are not discussing any of the details of our interaction with the threat actor, including this subject, but that subject is fully shared with the NCA,” he said.
It is estimated that the cyber attack will cost M&S up to £300m this year.
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Days after M&S was attacked, the Co-op was targeted and forced to shut down some internal systems.
Harrods was then hacked, and also had to shut some systems despite its website and shops continuing to operate.
Of those arrested, a 17-year-old British male and a 19-year-old Latvian male were from the West Midlands.
A 19-year-old man was from London and a 20-year-old woman from Staffordshire.
Royal Mail is to be allowed to scrap Saturday second-class stamp deliveries, under a series of reforms proposed by the communications regulator.
From 28 July, Royal Mail will also be allowed to deliver second-class letters on alternate weekdays, Ofcom said.
The post will still be delivered within three working days of collection from Monday to Friday.
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The proposals had already been raised by Ofcom after a consultation was announced in 2024, and the scale back was proposed early this year.
Royal Mail had repeatedly failed to meet the so-called universal service obligation to deliver post within set periods of time.
Those delivery targets are now being revised downwards.
Rather than having to have 93% of first-class mail delivered the next day, 90% will be legally allowed.
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The target for second-class mail deliveries will be lowered from 98.5% to arrive within three working days to 95%.
A review of stamp prices has also been announced by Ofcom amid concerns over affordability, with a consultation set to be launched next year.
It’s good news for Royal Mail and its new owner, the Czech billionaire Daniel Kretinsky. Ofcom estimates the changes will bring savings of between £250m and £425m.
A welcome change?
Unsurprisingly, the company welcomed the announcement.
“It is good news for customers across the UK as it supports the delivery of a reliable, efficient and financially sustainable universal service,” said Martin Seidenberg, the group chief executive of Royal Mail’s parent company, International Distribution Services.
“It follows extensive consultation with thousands of people and businesses to ensure that the postal service better reflects their needs and the realities of how customers send and receive mail today.”
Citizens Advice, however, doubted whether services would improve as a result of the changes.
“Today, Ofcom missed a major opportunity to bring about meaningful change,” said Tom MacInnes, the director of policy at Citizens Advice.
“Pushing ahead with plans to slash services and relax delivery targets in the name of savings won’t automatically make letter deliveries more reliable or improve standards.”
Acknowledging long delays “where letters have taken weeks to arrive”, Ofcom said it set Royal Mail new enforceable targets so 99% of mail has to be delivered no more than two days late.
Changing habits
Less than a third of letters are sent now than 20 years ago, and it is forecast to fall to about a fifth of the letters previously sent.
According to Ofcom research, people want reliability and affordability more than speedy delivery.
Royal Mail has been loss-making in recent years as revenues fell.
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In response to Ofcom’s changes, a government spokesperson said: “The public expects a well-run postal service, with letters arriving on time across the country without it costing the earth. With the way people use postal services having changed, it’s right the regulator has looked at this.
“We now need Royal Mail to work with unions and posties to deliver a service that people expect, and this includes maintaining the principle of one price to send a letter anywhere in the UK”.
Ofcom said it has told Royal Mail to hold regular meetings with consumer bodies and industry groups to hear their experiences implementing the changes.
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