The Bank of England BoE) raised its key base rate by 25 basis points to 4.5% during May, implementing its twelfth consecutive rate increase. Although inflationary pressures showed signs of easing, the decline was – as the BoE had predicted – shallower than previously expected.
- CPI inflation fell from 10.1% YoY to 8.7% in April
- The UK economy grew by 0.1% in the first quarter
- The rate of unemployment edged higher, and vacancies fell
UK rates rise to 4.5%: the Bank of England (BoE) raised its key base rate by 25 basis points to 4.5% during May, implementing its twelfth consecutive rate increase. Although inflationary pressures showed signs of easing, the decline was – as the BoE had predicted – shallower than previously expected. The rate of consumer price inflation moved back into single digits during April, falling from 10.1% to 8.7%; however, the smaller-than-expected decline fuelled fresh speculation about the outlook for interest rates. The rate of food price inflation remained high during April at 19.1% year on year. The FTSE 100 Index fell by 5.4% in May, while the FTSE 250 Index declined by 3.6%.
“The BoE believes that wage growth in the UK may have peaked”
Increasing the UK’s attractions: in a move designed to encourage companies to list their shares on UK stock markets, the Financial Conduct Authority (FCA) revealed proposals that would relax and streamline regulations, making UK markets more competitive compared with overseas markets. FCA Chief Executive Nikhil Rathi commented: “We want to encourage more companies to list and grow in the UK, versus other highly competitive international markets.” Although the move is intended to make the UK more competitive, there are fears that lifting some existing restrictions could increase risks for investors.
Muted growth in Q1: the UK economy posted growth of only 0.1% during the first three months of 2023 as activity was curbed by stubbornly high inflation and ongoing industrial action. The Office for National Statistics (ONS) reported that over half a million working days had been lost to strike action in March. The International Monetary Fund (IMF) upgraded its forecast for UK growth this year from -0.3% to 0.4%, citing the positive impact of lower energy prices, stabilising supply chains, and “resilient” demand. Nevertheless, the IMF warned that inflation remains high and is likely to be bolstered by “greater-than-anticipated persistence in price- and wage-setting”.
Has wage growth peaked? The rate of unemployment climbed from 3.7% to 3.9% between January and March and job vacancies continued to fall, undermined by question-marks over the economic outlook. Average earnings (excluding bonuses) rose to 6.7% during the period; in real terms, however, wages fell by 2%. Looking ahead, the BoE believes that wage growth in the UK may have peaked and expects it to start to ease over the latter half of the year.
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