Inflation remains frozen on 8.7 per cent ahead of Bank decision on interest rates

Bank of England chiefs are poised to further hike interest rates and pile more misery on mortgage holders after inflation unexpectedly remained frozen last month on 8.7 per cent.

The Office for National Statistics said rising prices for plane tickets, recreational and cultural goods and services caused the rate to stay unchanged. Worryingly, core inflation - which strips out volatile price items such as food and energy - increased to a 31-year high of 7.1 per cent, up from 6.8 per cent in April.

May’s headline figure, higher than economists had predicted earlier in the year, dashed hopes of a fall in inflation for the third consecutive month. Analysts had expected the Consumer Prices Index, which peaked at 11.1 per cent in October last year, to fall back to 8.4 per cent.

But the fact the rate remained unchanged last month will add to growing concern that rising prices are becoming embedded in the economy.

Are you concerned about inflation and the rising cost of mortgages? Contact matt.mathers@independent.co.uk to share your story.

ONS chief economist Grant Fitzner said: "After last month’s fall, annual inflation was little changed in May and remains at a historically high level.

"The cost of air fares rose by more than a year ago and is at a higher level than usual for May. Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high."

The Bank will now almost certainly hike interest rates when officials meet tomorrow, with some City analysts predicting the base rate could rise to an eyewatering 6 per cent, bringing further pain for mortgage holders in tracker deals.

Economists had expected rising prices to fall back to 8.4 per cent last month and the fact it remains unchanged is another blow for Rishi Sunak’s pledge to halve inflation by the end of the year.

It comes as millions of households across the UK continue struggling with the cost of living squeeze and the government comes under increasing pressure to intervene on mortgage help, although chancellor Jeremy Hunt has so far ruled this out.

Earlier this week figures showed that the average cost of a two-year fixed mortgage deal had risen above 6 per cent for the first time since December.

Marcus Brookes, chief investment officer at Quilter Investors, said the inflation figures showed that the UK seems to be “suffering” from a more “unique” set of circumstances in comparison to other similar-sized Western countries.

“Today’s inflation figure will be a bitter pill to swallow for consumers, investors and the government,” he said.

“With CPI unchanged and core inflation rising, this confirms that the Bank of England has no choice but to raise interest rates tomorrow. Having jumped down from double digits last month, we are once left to wait for inflation to return to its downwards trajectory to normal levels.”

He added: “The UK really does seem to be suffering from a more unique set of circumstances and this is leaving the Bank of England with little choice, despite consensus that this inflation is driven more by supply issues than demand ones.”

Julian Jessop, economics fellow at free market think tank the Institute of Economic Affairs, said: “The latest inflation shock will heap pressure on the Bank of England to raise interest rates even further, increasing the risk of overkill.

“Headline inflation should still drop sharply over the rest of the year as food and energy prices fall back. But the problem now is that core inflation, excluding food and energy, is no longer just ‘sticky’. Instead, it is actually heading in the wrong direction.

“To some extent, this is driven by temporary factors like the extra Bank Holiday and the large increase in the national minimum wage. The bigger picture, however, is that the UK is still paying for the Bank’s underestimation of inflation and decision to keep monetary policy too loose for far too long.”

He added: “The government should avoid kneejerk and counterproductive policies like mortgage subsidies or price controls. But they have a role in tax and regulatory reform, including fixing our broken planning system, to ease constraints on the supply side and to boost the economy’s productive potential."

The chancellor said: “We know how much high inflation hurts families and businesses across the country, and our plan to halve the rate this year is the best way we can keep costs and interest rates down.

“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.”

Liberal Democrat Treasury spokesperson Sarah Olney claimed Mr Hunt “just sits on his hands” and said the figures showed that the government is “failing miserably to bring inflation down”.

Calling for a £3bn mortgage protection fund, Ms Olney said: “It beggars belief that ministers are refusing to support hard-pressed families when it’s this Conservative government’s catastrophic failure to run the economy that caused this crisis.”

“This must be the most uncaring government to ever walk into Downing Street. It’s as if ministers are living on another planet.”

Labour’s shadow chancellor Rachel Reeves said: “This Tory government can’t get a grip of this problem because they are the problem.

“13 years of the Tories and their disastrous mini-Budget are damaging our economic security and leaving families worse off. Simply continuing on this Tory path of managed decline is not the summit of Labour’s ambition.”

She added: “We need a more secure economy, more secure family finances and a plan to help us grab hold of the opportunities before us.

“With a relentless focus on the cost of living, our strong fiscal rules and our mission for growth, that is what a Labour government will bring.”