Inflation figures raise fears of ‘shock-and-awe’ Bank of England interest hike as mortgage rates climb – latest updates

The prime minister has taken his “honesty lessons from Boris Johnson”, the SNP has suggested.

The party’s Westminster leader Stephen Flynn questioned Rishi Sunak’s “economic optimism” over recent months.

Consumer Prices Index inflation stayed at 8.7% in May, the same as in April, despite experts forecasting a fall to 8.4%.

The Office for National Statistics meanwhile said the increase in food prices slowed from 19.1% in April to 18.4% in May.

In the Commons, Mr Flynn said: “In February the Prime Minister told this here House that borrowing costs are back to where they should be, in March he boasted we are on track to halve inflation by the end of the year, and in May he then said economic optimism is increasing.

“Given the dire economic reality of today, is it not now clear that he has taken his honesty lessons from Boris Johnson?”

Rishi Sunak replied: “He also failed to mention that not just the Bank of England, not just the OBR, not just the OECD, but also the IMF, all of them have upgraded their growth outlook for the United Kingdom economy this year.

“Whilst he and others were predicting this country would enter a recession, the actions of this Government have meant that we have so far averted that, and we continue to be on track to keep reducing inflation because that is the right economic priority.”

Commons Speaker Sir Lindsay Hoyle warned Mr Flynn to be a “little bit more cautious” and not imply Mr Sunak had intentionally misled MPs.

Downing Street has insisted Rishi Sunak is still on course to fulfil his pledge of halving inflation by the end of the year despite it remaining stubbornly high.

The prime minister’s official spokesperson said: “That remains the target.”

Asked if they are on track to fulfil the promise, they added: “Yes. Despite some of the coverage at the time [of the announcement of the pledge] this was never something that was straightforward. It was rightly an ambitious target that we remain committed to and it can only be achieved with fiscal discipline.”

Today’s gloomy figures show that inflation struck 8.7 per cent in May, still considerably down from the 11.1 per cent peak it hit late last year but now stagnant since April.

Prices rocketed after the Russian invasion of Ukraine last February caused the price of energy to shoot higher, adding to pressure from supply disruption.

It contributed to higher costs for firms making products or offering services, while labour costs also started to rise.

Since then, higher food and drink prices are a key reason why inflation has failed to fall as fast as hoped. Olive oil, eggs and cheese are among items to see the sharpest increases over the past year.

However, according to the ONS, core inflation – which excludes items such as food and energy – is also at its highest level for 31 years.

Consumer champion Martin Lewis has been at Downing Street today to meet with chancellor Jeremy Hunt.

Despite today’s dire economic figures, a Tory former cabinet minister has claimed that it is “time “we heard more good news, talking Britain up”.

Dr Liam Fox told PMQs: “Since 2016, cumulative growth in Italy has been 4 per cent, in Germany has been 5.5 per cent, in the UK has been 6.8 per cent.

“In May last year, British exports to the European Union were not just the highest since Brexit but since records began. The UK had the highest growth of any G7 country in both 2021 and 2022. The eurozone is currently in recession, we are not. Is it not time we heard more good news, talking Britain up?”

Rishi Sunak replied: “He is quite right to highlight the improvement in our economic outlook and he is right to highlight the good, positive news showing the strength in the underlying economy. I know that he joins with me in saying that our economic priority right now must be to continue to bear down on inflation.

“But while we do that, we are putting the conditions in place to grow this economy. As he said, unlike the party opposite we won’t talk Britain down, we will grow the country’s jobs.”

Speaking at PMQs, Labour leader Sir Keir Starmer challenged Rishi Sunak on mortgage rises, asking: “How is an extra £2,900 a year on repayment delivering for homeowners?”

He said: “The question he refuses to answer, he actually knows the answer to this question, is £2,900 extra. That’s the cost to the average family of the Tory mortgage penalty.

“Now he was warned by experts about this as long ago as autumn last year, but he either didn’t get it, didn’t believe it or didn’t care because he certainly didn’t do anything, and when I raised this a couple of months ago, he had the gall to stand at that despatch box and say he was delivering for homeowners. How is an extra £2,900 a year on repayment delivering for homeowners?”

The PM replied: “Perhaps [he] could explain why interest rates are at similar levels in the US, in Canada, in Australia and New Zealand, why they’re at the highest level in Europe that they’ve been for two decades.

“That’s why it’s important that we have a plan to reduce inflation, but in contrast what do we hear from (him). He wants to borrow an extra £28bn a year, that would make the situation worse …. He doesn’t have many policies, but the few that he does have all have the same thing in common, they’re dangerous, inflationary and working people would pay the price.”

Our columnist Andrew Grice writes:

Today’s worse than expected inflation figures are grim for the government and will increase the pressure on the Bank of England to raise interest rates tomorrow, therefore compounding the mortgage crisis.

With the cost of a two-year fixed rate mortgage now above six per cent, Conservative MPs are increasingly jittery about the political impact of higher payments home buyers. The penny has dropped that the pain is going to last until the general election – whenever Rishi Sunak calls it.

Sunak is not only haunted by Boris Johnson. The mortgage crisis shows he is also struggling to move on from the disastrous Liz Truss regime. Memories of that make it easier for Labour to hang the mortgage crisis round the Tories’ necks rather than allow them to blame external events beyond their control like war in Ukraine.

The inflation figures are another black spot in what is becoming Sunak’s cruellest month as PM. They will supplant headlines about Johnson and Partygate – but only with grim economic news.

Labour leader Sir Keir Starmer has attacked Tory policies as to blame for the “mortgage catastrophe”, as he confronted Rishi Sunak at PMQs.

In a reference to Mr Sunak’s absence over the vote to condemn Boris Johnson, Sir Keir told the Commons: “I realise the prime minister spent all week saying he doesn’t want to influence anyone or anything. He is certainly keeping to that with his answer.

“He knows very well the cause of the mortgage catastrophe – 13 years of economic failure and a Tory kamikaze budget which crashed the economy and put mortgages through the roof.

“So, will the prime minister tell us how much the Tory mortgage penalty is going to cost the average homeowner?”

Mr Sunak replied: “The honourable gentleman isn’t aware of the global macroeconomic situation.”

He added: “We have deliberately and proactively increased the generosity of our support for the mortgage interest scheme, we have also established a new FCA (Financial Conduct Authority) … duty which will protect people with mortgages, for example moving them onto interest-only mortgages or lengthening mortgage terms.

“We have spent tens of billions of pounds supporting people with the cost of living, particularly the most vulnerable.”