Week ahead: More inflation woe to pile pressure on Bank of England to act

Grocery Prices Reflect Rising Cost Of Living In UK
The cost of living crisis has forced seven in 10 families to turn the heating on less due to rising prices, 39 per cent are using less hot water, and 19 per cent are having fewer cooked meals

Inflation bumped higher last month, reinforcing pressure on the Bank of England to motor through rate hikes, according to City analysts.

London’s premier FTSE 100 index notched a poor performance last week, losing a shade over 0.5 per cent to finish at 7,159.01 points. The domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, dipped 0.42 per cent to close the week at 18,833.80 points.

Markets are likely to respond to fresh cost of living figures published on Wednesday by ratcheting up their bets on a series of monster rate rises by the Bank.

Analysts think inflation hit 9.2 per cent in June, up from an already 40-year high of 9.1 per cent in May.

“Driving the jump in inflation is a big surge in energy prices, as pump prices shot up in June,” Sanjay Raja, senior economist at Deutsche Bank, said.

He added a bigger jump will raise the risk of Threadneedle Street lifting borrowing costs 75 basis points.

Governor Andrew Bailey’s annual Mansion House speech on Tuesday will be watched closely for signs of a big rate rise endorsement. It is likely to be Bailey’s last appearance before the Bank’s next meeting on 4 August.

“Anything other than broad based endorsement of keeping the door open to more aggressive hikes will be disappointing for markets,” Raja added.

An ongoing slide in living standards caused by inflation outstripping pay growth is likely to emerge from new jobs figures on Tuesday. 

That pressure on household finances will push consumer confidence even further below the lowest level since records began in the 1970s, figures released on Friday are anticipated to show.