Article 5K4EQ US Federal Reserve sees first rate rise in 2023; UK inflation rises over BoE target – as it happened

US Federal Reserve sees first rate rise in 2023; UK inflation rises over BoE target – as it happened

by
Graeme Wearden
from on (#5K4EQ)

Rolling coverage of the latest economic and financial news

Earlier:

9.38pm BST

And finally...stocks finished lower in New York, as traders reacted to the news that a majority of Federal Reserve officials now expect US interest rates to rise in 2023.

But the main indices recovered from their lows, after Fed chair Powell said those dot plots weren't a great forecaster, and reiterated that the central bank believes inflationary pressures will be temporary.

Stocks finished with losses, but off session lows, after the Federal Reserve on Wednesday signaled that policy makers expect rates to rise earlier than previously expected by penciling in two increases by the end of 2023. https://t.co/6WurseMHrg pic.twitter.com/F9tCmQNnwa

US Dollar price action is broadly stronger as yields push higher post-Fed decision. Get your market update from @RichDvorakFX here:https://t.co/J9gLa1XPtx pic.twitter.com/aquWAe1koD

Pound sterling weakened against the US Dollar. Will support level of 1.40055 hold? #gbpusd #bearish https://t.co/GKcEHP34H8 pic.twitter.com/Qt32T0FoD7

9.18pm BST

Q: If you raise rates, you slow the economy, and the Fed has a history of sometimes going too far....

Jerome Powell says the Fed has to follow its dual mandate, of maximum employment and price stability. Often they pull in the same direction, he points out.

It turns out it's a heck of a lot easier to create demand than it is to bring supply back up to snuff. That's happening all over the world. There's no reason to think that will last indefinitely.

9.11pm BST

Our current situation is that many millions of people are still unemployed, while inflation is running over target, says Jerome Powell, when asked about the Fed's monetary policy framework.

So the challenges is to separate broad price increases from idiosyncratic factors - it's not easy to tell which is which in real-time.

We will do what we can to avoid a market reaction, but ultimately when we achieve our macroeconomic goal we will taper, as appropriate.

8.59pm BST

Q: Are we looking at a scenario next year of a slowing US economy with higher inflation?

Powell says the economy isn't expected to have as much fiscal support in 2022, but growth is still seen meaningfully above the long-term potential economic outlook.

8.43pm BST

Jerome Powell says it's too early to declare victory in the pandemic, even though cases, hospitalisations and deaths in the US have declined sharply.

He points out that the UK, which has at least as high vaccination rates as the US, has suffered an outbreak of the Delta variant, and had to react (by postponing the end of restrictions by a month).

8.34pm BST

I asked Powell whether the shortages (long lead time for kitchen cabinets) will be followed by excess supply (lower lumber prices but not cheaper kitchen cabinets).
He said probably not. So that makes me feel good about my kitchen reno, I guess

8.30pm BST

Back on the labor market.... Jerome Powell says a slew' of retirements may have hit participation rates.

And on wages, he says pay is going up - that's natural in a strong economy - but the Fed isn't seeing anything troubling".

Fed's Powell: we don't see anything "troubling" about inflation yet. Higher wages are mostly for people in entry-level jobs.@federalreserve @CNBC

FED'S POWELL: WE DO SEE HIGH WAGES FOR MARKET ENTRANTS IN LOW-SKILL JOBS.

8.17pm BST

Jerome Powell is sounding somewhat dovish - insisting that the dot plot chart is not a great forecaster of future interest rate moves.

They are individual projections - they're not a committee forecast, or a plan, the Fed chair insists during his press conference.

Powell bashes the dot plot, saying "the dots are not a great forecaster of future rate moves" and should be taken "with a grain of salt."

The Federal Reserve's so-called dot plot, which the U.S. central bank uses to signal its outlook for the path of interest rates, shows that officials expect no change in policy this year, while leaning toward two rate increases by the end of 2023, based on median estimates.

The Fed on Wednesday kept its benchmark rate on hold for a 10th straight meeting after sweeping into emergency action amid the coronavirus pandemic in March of last year with a full percentage-point cut.

When Will the Fed Raise Rates? New Dot Plot Projects Two Hikes by End of 2023 - Bloomberg https://t.co/GrDfzJpRYO

8.06pm BST

On the issue of when to taper the Fed's bond-buying stimulus, Powell says this week's meeting was the talking about, talking about' meeting -- a term he's now like to retire.

So the FOMC will continue to assess progress in the economy.

FED Chair Powell: May Say More On Taper Timing As We See More Data
- This Was The Talking About Talking About Meeting
- We Have Clearly Made Progress, But Still A Ways From Goal Of Substantial Further Progress

You can think of this meeting that we had as the 'talking about talking about' meeting," Fed Chair Powell tells @ylanmui. https://t.co/nME3bGpbAo pic.twitter.com/pL6P5jcHx1

7.59pm BST

Why hasn't hiring been faster, given there are a record number of vacancies (over nine million)?

Jerome Powell says there are several factors -- including a skills mismatch between the jobs available and the people looking for work; some people being reluctant to return to customer-facing roles due to Covid-19, and childcare responsibilities, which might ease once schools and childcare centres reopen in the fall.

Fed Chair Powell on why so many job openings *and* lots of unemployed:
- skills mismatch
- people still afraid of covid
- childcare, should ease in the fall when schools in person
- enhanced unemployment insurance for 15M will end or be diminished by Sept #Fed

Fed Chair Jerome Powell says unemployment insurance "appears to be" a factor holding back hiring.

He mentions 3 factors likely holding back hiring:
1) "Caregiver needs"
2) health "fears"
3) "unemployment insurance" pic.twitter.com/A8EE9Nlr0q

7.48pm BST

Some snap reaction:

#Fed chair #Powell: "Inflation could turn out to be higher and more persistent than we expect." Sounds like a nod to upside risk.

5 minutes into the presser, #Fed Chair #Powell already hat some strong statements:
1) Inflation could turn out to be higher and more persistent that we expect.
2) unemployment assistance may hold back workers wanting to go back to work
3) variants remain a risk #Handelsblatt

7.48pm BST

Fed chair Powell adds the inflation could turn out to be higher and more persistent than the FOMC expects.

On the pandemic, he points out that the Covid-19 vaccination programme has slowed, and new strains of the new virus remain a risk.

#Powell notes slowing vaccinations, and says, "New strains of the virus remain a risk."

7.42pm BST

Inflation has increased notably in recent months, and is likely to remain elevated in coming months before moderating, Powell continues.

This is partly because very low readings in the pandemic have fallen out of the calculations, and because of higher oil prices.

7.39pm BST

Jerome Powell, the Chair of the Federal Reserve, is speaking now.

He says Fed policy will continue to deliver powerful support to the economy. He warns that the recovery is incomplete, with risks remaining.

The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been hardest hit.

7.31pm BST

The Federal Reserve on Wednesday brought forward its projections for the first post-pandemic interest rate hikes into 2023, citing an improved health situation and dropping a longstanding reference that the crisis was weighing on the economy.

New projections saw a majority of 11 Fed officials pencil in at least two quarter-point interest rate increases for 2023, even as officials in a statement after their two-day policy meeting pledged to keep policy supportive for now to encourage an ongoing jobs recovery.

7.31pm BST

Stocks have dropped on Wall Street following the Fed's announcement.

The S&P 500 index is down 0.75%, or 32 points, at 4,215 points, with the Dow (-0.8%) and the Nasdaq composite (-0.6%) also down.

$ES_U's first move is south on #Fed statement. More members seeing rate rise next year. $SPX $NDX $IWM pic.twitter.com/AUBTkl9kei

7.22pm BST

The Fed has also raised its forecast for growth and inflation this year.

It now expect US GDP to rise by 7% during 2021, up from 6.5% previously.

Latest Fed projections are live: pic.twitter.com/urZZe1Va9B

Though the Fed raised its headline inflation expectation to 3.4%, a full percentage point higher than the March projection, the post-meeting statement continued to say that inflation pressures are transitory."

US Federal Reserve leaves interest rates unchanged but indicates it will raise rates twice in 2023

Fed officials now expect:
* 3.4% inflation in Q4, up from 2.4% in March
* 7% GDP, up from 6.5% in March
* Unemployment rate unchanged at 4.5%

7.14pm BST

The Federal Reserve has left US interest rates on hold, but brought forwards its forecast for the first interest rate rise.

The Federal Open Market Committee (FOMC) now expects the first interest rate rise to come in 2023, with the dot plot' of policymakers' forecasts now pointing to two rate hikes before the end of 2023.

Dot Plot:13 out of18 officials see one hike by end of 2023 in contrast with 7 in March. Right now rates rising...lets see once traders and investors can digest the shift in policy. The hawkish tint of the SEP would imply Fed is taking inflation seriously and could cause reversal. pic.twitter.com/OqBgn1uv7e

The #Fed dot chart is out. Seven participants see rate liftoff next year; well over half see rate hikes by 2023. Quite a divergence of opinion, as evidenced by the dispersion of the dots. pic.twitter.com/bmalZ2HT6o

Fed hawkish surprise. 2 hikes in 2023 (median) suggests FOMC has overall shifted more hawkish. Will be seen as $USD positive & sets up Aug Jackson Hole taper announcement. But a lot rides on US data (esp next few jobs print). Powell may talk hawkish reaction down pic.twitter.com/cPIEWyl0R7

JUST IN: The Fed is now signaling TWO rate increases in 2023.

(As recently as March they were saying no increases until 2024) https://t.co/DPOJk0eRe9

6.54pm BST

Nearly time for the Federal Reserve to release the results of its FOMC meeting....

Most, including me, don't expect a change in #Fed policy announced in 10 minutes. But the text and #Powell's presser have the ability to tilt the narrative from where it has been or not. To what degree that happens or doesn't is the story.$ SPX $NDX $IWM

6.42pm BST

The UK government has held talks with six manufacturers about building gigafactory" electric car battery plants as part of its efforts to improve the prospects of the British automotive industry.

The US carmaker Ford and the Korean electronics conglomerates LG and Samsung are among the companies that have had early-stage discussions with the government or local authorities, it is understood.

Related: UK in talks to build battery gigafactories' for electric cars

5.20pm BST

European shares have closed at a new record high on Wednesday, extending their winning run.

Investors pushed stocks a little higher, despite some caution ahead of the U.S. Federal Reserve's monetary policy decision due later today.

The pan-European STOXX 600 was up 0.2% to a record high of 459.86 points, marking its longest gaining streak in three-and-a-half years with a ninth straight positive session.

Travel and leisure, utilities and chemical stocks were the best performers, as investors bet on a jump in consumer demand and industrial production.

5.14pm BST

Sony Music has acquired the UK's largest independent podcast producer, Somethin' Else, which makes David Tennant's interview series and The Sun King, David Dimbleby's deep dive into the life of Rupert Murdoch

Our new global podcast division is key to our plans for a fast-paced expansion in the market, diversifying our creative abilities and providing a home for exciting content that will benefit millions of podcast lovers around the world."

Related: Sony Music buys UK podcast producer Somethin' Else

5.05pm BST

Another day, another pandemic closing high on the London stock market.

The blue-chip FTSE 100 index has ended the day at around 7185 points, a modest rise of 12 points or 0.15% today.

4.28pm BST

Wall Street is subdued ahead of the Federal Reserve's monetary policy decision in a few hours time.

The Dow and the S&P 500 are flat, while the tech-focused Nasdaq Composite is up 0.2%, or 30 points, at 14,103.

US markets have opened steady as she goes ahead of today's Fed meeting, shrugging off some weak housing starts and building permits data for May.

The weak data may well have had something to do with the big move higher in lumber prices that we saw in May, and which probably prompted a slowdown in construction due to the higher costs. We could see a rebound in June now that prices have slipped back.

4.03pm BST

Related: My wallet never leaves my bedside': why cashless will soon be king

3.46pm BST

Back in the UK, the government is extend a ban on evictions for businesses unable to pay their rent due to the coronavirus crisis until March 2022.

This ban was due to expire at the end of this month, and prevents shops, restaurants and other businesses that had stopped paying rent from being evicted.

Existing measures will remain in place, including extending the current moratorium to protect commercial tenants from eviction to March 25, 2022."

Gov has extended temporary ban on evictions for commercial tenants until 25th March 22. New legislation being introduced to support "orderly" resolution of debts built up. New binding arbitration process for tenants and landlords who can't agree.

Businesses across the country have been clinging to a cliff edge for weeks and have finally been offered the parachute they so desperately need. After everything that tenants have gone through this past year, they deserve a soft landing and some temporary breathing space.

Legislation to seek binding arbitration over rent arrears is a watershed moment and will ensure our economy, our jobs and our livelihoods are not massacred by a sudden end to the rent moratoria.

2.48pm BST

More data for the Federal Reserve to ponder...

US home construction rose in May, although not as fast as expected, and the number of permits approved to build a new property fell.

Housing starts were up 3.6% MoM, 50.3% YoY in May. Building permits issued were down -3.0% MoM, but still up 34.9% YoY. Housing units completed fell -4.1% MoM to 16.1% YoY. Completions continue to trail starts at a significant rate. https://t.co/F6A30zRzVp pic.twitter.com/Vf7XjDlgba

New home construction rose 3.6% in May, but that was under market expectations, and in a sign that activity will weaken over the summer, building permits were down 3%. Homebuilder stocks edging lower, #DOW -42 ahead of the Fed decision.

1.53pm BST

Inflation has also surged in Canada, to its highest annual rate in a decade.

The Canadian Consumer Price Index rose 3.6% on a year-over-year basis in May, up from a 3.4% gain in April, new data shows

Inflation rate for May in Cda hits 3.6%, highest in a decade. It is the largest yearly increase since May 2011. Reading for May compared with year-over-year gain of 3.4% in April. Excluding gasoline, consumer price index in May was up 2.5% compared with a year ago. More to come.

#Breaking
-Canada May Inflation rate up 3.6% y/y (est. up 3.5%)
-Core CPI up 2.3%
-y/y Gas prices up 43%
-Home replacement costs up 11% (highest since 1987)
-furniture prices up 9.8% (biggest jump since 1982)

#Canada #inflation hits 3.6% y/y in May, highest since March 2011. The seasonally adjusted CPI rose +0.4% m/m versus +0.1% in May 2020.

I must say, when you remove gasoline, you're only back to where you where pre-pandemic. @bankofcanada CPI Common at 1.8% (on target), BoC "Core" at 2.8%. pic.twitter.com/npFiDHAfOb

1.38pm BST

In the US, mortgage applications have picked up after three weeks of falls - despite the shortages of properties that drove prices higher.

Applications for home loans rose 4.2% last week, the Mortgage Bankers Association reports.

The jump in refinances was the result of the 30-year fixed rate falling for the third straight week to 3.11 percent - the lowest since early May.

U.S. Treasury yields have slid because of the uncertainty in the financial markets regarding inflation and how the Federal Reserve may act over the next few months."

Mortgage Application in the United States increased by 4.20 percent in the week ending June 11 of 2021 over the previous week. https://t.co/fmhyqvEcHy pic.twitter.com/29qrBfzBaO

1.28pm BST

The UK competition regulator has accepted an offer from Asda's prospective new owners to sell 27 petrol stations to satisfy concerns that the takeover could lead to higher prices, Press Association reports.

In October, billionaires Mohsin and Zuber Issa and private equity backer TDR Capital agreed a 6.8bn deal to buy the supermarket chain.

We welcome today's announcement from the CMA, which means we can now fully embark on the next stage of our journey under new ownership and work with Mohsin, Zuber and TDR to build an even stronger Asda that gives our customers outstanding choice, value and service in our stores and online."

The CMA had officially accepted Asda buyers' concessions to sell off 27 forecourts. Just need to find an approved buyer and the Issas and TDR will finally be able to do what they want with the supermarket

CMA has given the green light to the Issa brothers' acquisition of Asda. The grocer's new owners had offered to sell 30 petrol stations to push the deal through - a move that has been accepted by the watchdog

Asda boss Roger Burnley said: "We welcome today's announcement from the CMA, which means we can now fully embark on the next stage of our journey under new ownership and work with Mohsin, Zuber and TDR to build an even stronger Asda."

1.12pm BST

Some of the price swings in May reflected the disruption caused by the pandemic last year, such as the jump in fuel costs.

The big question is whether more chronic inflationary pressures will emerge, as my colleague Richard Partington explains:

There are some signs this could be the case, as companies report staff shortages and problems with the rising price of raw materials and transport costs - exacerbated by Covid-19 border restrictions and Brexit.

Factory gate prices rose 4.6% on the year, as the cost of materials surged 10.7% for Britain's manufacturers, led by metal prices soaring to the highest point since May 2007. This could feed through to higher prices in the shops, if retailers pass these price rises on.

Related: Pressure will build on Bank of England not to fall behind the curve with inflation

12.58pm BST

UK inflation jumped to 2.1% in May, breaching the Bank of England's target for the first time in two years and stoking fears that the easing of pandemic restrictions since March will lead to a sustained rise in the cost of living.

The price of fuel was one of the main drivers of May's increase, soaring by almost 20% from last year to push the rate of inflation up from 1.5% in April.

Related: UK inflation jumps to 2.1% as petrol and clothing prices rise

12.36pm BST

Hipgnosis, the company that offers investors the chance to make money from the royalties of popular songs by artists from Barry Manilow to Beyonce, wants to raise 150m to allow it to acquire more music.

Related: Hipgnosis aims to raise 150m to buy more of most influential songs of all time'

12.23pm BST

The UK has moved a big step closer to becoming a cashless society after official data showed that the number of payments made using notes and coins fell by 35% in 2020.

Cash was only used for one in six payments, compared with a decade ago when it accounted for more than half of the total.

Related: Cashless society draws closer with only one in six payments now in cash

12.21pm BST

After a strong run, UK house prices fell in April after the initial rush to take advantage of the stamp duty holiday in March.

New Land Registry figure show that the average UK house price dropped to 250,772 in April, from a record high of 255,707 in March.

April 2021 UK House Price Index: The average #propertyprice is now 250,772 in the #UK. Monthly UK #HousePrices fell 1.9% between March and April 2021 https://t.co/SUPKjZzGgw pic.twitter.com/K8TMvTWjUa

Average house prices increased over the year in

England to 268,000 (8.9%)
Wales to 185,000 (15.6%)
Scotland to 161,000 (6.3%)
Northern Ireland to 149,000 (6.0%)

https://t.co/8IljsXpzpa pic.twitter.com/XXIQKQ14UD

On 8 July 2020, the Chancellor of the Exchequer announced a suspension of the tax paid on property purchases with immediate effect in England and Northern Ireland. The suspension came into effect slightly later, on 15 July in Scotland and 27 July in Wales. In England and Northern Ireland, properties up to the value of 500,000 would incur no tax, while the thresholds for Scotland and Wales were 250,000. These changes in the tax paid on housing transactions may have allowed sellers to request higher prices as buyers' overall costs are reduced.

As the tax breaks were originally due to conclude at the end of March 2021, it is likely that this inflated March's average house prices as buyers rushed to ensure their house purchases were scheduled to complete ahead of this deadline. The monthly property transactions statistics published by HM Revenue and Customs (HMRC) show that the seasonally adjusted number of transactions in March 2021 were estimated to be 183,170, the highest on record, but in April 2021 they fell to 117,860 - a fall of 36%.

Commenting on house price data for April, ONS Head of Economic Statistics Sam Beckett said: (1/3) pic.twitter.com/IIkcgE8yyC

Sam Beckett continued: (2/3) pic.twitter.com/9mXhS7KU4l

Sam Beckett added 3/3: pic.twitter.com/tL03xvseJg

11.19am BST

Over in China, retail sales, factory output and investment by companies were all lower than expected last month, new data shows.

China said Wednesday that retail sales rose 12.4% in May, missing expectations despite government efforts to boost spending and a major holiday during the month.

Analysts had expected retail sales to rise 13.6% in May from a year ago.

China's retail sales miss expectations again https://t.co/e9egbh4vJv

In particular, the output of auto vehicles fell 4% from a year earlier, compared with an increase of 6.8% in April, crimped by a global chip shortage.

This is a normal cyclical slowdown after an economic recovery. In a nutshell, we can see the economic rebound is peaking," said Hao Zhou, senior EM economist Asia, Commerzbank.

10.42am BST

In the City, the blue-chip FTSE 100 index touched its highest level since late February 2020, when last spring's market crash began.

The FTSE 100 hit 7217 points, up 45 points or 0.6%, a near 16-month high, although it's since fallen back and is broadly flat on the day.

The FTSE 100 moved forward despite a stronger pound being a headwind for its multitude of overseas earners.

[The rise] was driven by NatWest as banks should benefit from a stronger UK economy thanks to increased appetite from consumers and businesses to borrow money, as well as gains from B&Q owner Kingfisher which is riding the DIY boom.

10.20am BST

Inflation has also reached the hairdressers.

Hair-rising inflation.
Prices in the UK's hairdressing and personal grooming sector are up 7.9% over the past year - the highest annual increase since the early 1990s pic.twitter.com/0ejVu3xWOO

9.42am BST

Here are some notable price changes in today's inflation report:

9.42am BST

Capital Economics, the economic research consultancy, have lifted their inflation forecast.

They now predict CPI will peak at 2.9% in November, compared to 2.6% previously, as businesses have raised their prices by more than expected since the lockdown was relaxed.

With businesses having raised their prices by more than we expected once they reopened after COVID-19 lockdowns ended, we now think CPI inflation will rise to a peak of 2.9% later this year compared to 2.6% previously. https://t.co/Nt6ezOPIlN pic.twitter.com/Y8JgFzLLKW

9.29am BST

Games, toys and hobbies had a large upward effect" on inflation, with prices rising 2.8% in May.

Prices overall rose this year but fell a year ago, with the main upward contributions coming from computer game downloads and, to a lesser extent, computer games and children's craft kits.

Partially offset by a small downward contribution coming from construction toys, where prices overall fell this year but rose a year ago.

Related: Lego-playing kidults help build UK toy sales during Covid lockdown

9.09am BST

Core UK inflation, which excludes the price of food, energy and other volatile items, surged to 2.0% in the 12 months to May, up from 1.3% in April.

Again, that's much higher than expected [economists forecast a smaller rise to 1.5%].

UK core inflation leaped to 2% in May, wildly surpassing expectations and marks a considerable jump from 1.3% in April. While an element of this is down to base effects - though more so on the energy side - given the annual comparison compares to the depths of the pandemic, that's only really part of the story here.

It's pretty clear reading the details that there is a reopening effect, with the likes of restaurant and hotel prices increasing on the month.

8.52am BST

The pound has risen this morning, gaining a third of a cent against the US dollar to $1.411.

That take sterling away from the one-month low (around $1.404) seen yesterday.

Higher-than-expected inflation has provided the pound with a boost from levels under 1.41 and could potentially break the GBPUSD downward streak seen from the end of last month.

Strictly speaking, high inflation is a reason for the Bank of England to signal an oncoming monetary policy tightening, which goes in favour of sterling.

8.35am BST

The rise in inflation is a blow to those relying on cash savings for income - with UK interest rates pegged at a record low of 0.1%.

Neil Messenger, Client and Markets director at 1825 (Standard Life Aberdeen's financial planning division) explains:

Inflation jumped to 2.1% in May, exceeding the government's 2% target.

Each step out of lockdown has brought another boost to consumer confidence and demand - so perhaps now the end of lockdown has been delayed inflation will begin to plateau.

8.26am BST

A wage-price spiral in the UK is unlikely but not wholly impossible", says Ian Stewart, chief economist at Deloitte:

The unleashing of pent-up demand into economies with reduced capacity is driving inflation across the world. The Bank of England, like the US Federal Reserve and the European Central Bank, believe that supply bottlenecks and rising commodity prices will not last and inflation will ease next year.

The big question is whether price rises drive wages higher, creating a wage-price spiral. With more than three million people on furlough and unemployment well above pre-pandemic levels that looks unlikely - but not wholly impossible."

8.19am BST

Supply chain disruption caused by the pandemic and Brexit also pushed up inflation, says Yael Selfin, chief economist at KPMG UK.

Selfin also suggests that staff shortages in some industries (notably hospitality) could push up inflation, if employers raise wages to attract and retain workers.

Short-term inflationary pressures brought about by a perfect storm of rising oil prices, supply chain misalignments as the global economy reopens and border frictions with the EU, saw UK inflation rise to 2.1% in May, above the Bank of England's target level of 2%. Changes to VAT will push inflation further this year, although we expect it to average 1.9% this year and 2.2% in 2022.

There is a greater level of uncertainty about prices at present, with a possibility that inflation will turn out to be higher if staff shortages persist, triggering stronger wage rises, while cost increases continue to be passed on to consumers.

Related: Severe staff shortages hit UK hospitality venues amid huge rise in bookings

8.13am BST

The UK has now seen the biggest six-month rise in inflation in a decade, says Jack Leslie, Senior Economist at the Resolution Foundation [from 0.3% in November to 2.1% in May].

But he says policymakers shouldn't panic, and should focus on tackling unemployment.

Inflation has risen sharply in recent months and will rise further as the impact of higher commodities prices feed through the supply chain. But UK inflationary pressures are different - and nowhere as near as large - as those causing fierce debate in the US.

Looking ahead, with the medium-term outlook for inflation in the UK still relatively benign, policy makers should look beyond today's figures and worry far more about rising unemployment than rising inflation."

8.07am BST

We also have signs that inflationary pressures are building up in the economy.

UK manufacturers raised their prices by 4.6% year-on-year in May 2020, up from 4% in April, according to the latest producer price inflation report, which tracks prices at the factory gate.

Transport equipment, and metals and non-metallic minerals provided the largest upward contributions to the annual rates of output and input inflation respectively.

Supply chain inflationary pressures are rising - rate of output inflation for goods leaving the factory gate at 4.6% on the year to May 2021, up from 4.0% in April.

Input prices growth at 10.7% on the year to May 2021, highest since September 2011 & up from 10% in April. pic.twitter.com/V2XGOKhkXf

There are strong signs of further inflationary pressure coming down the pipeline. The prices paid by companies for raw materials and other supplies (also known as input prices) rose by 10.7% - the highest rate since September 2011.

7.52am BST

Clothing and footwear prices rose by 2.3% between April and May this year, compared with a smaller rise of 0.3% between the same two months a year ago, the inflation report shows.

In May 2020, the proportion of discounting was relatively high during the first coronavirus lockdown when demand may have been reduced as a result of less browsing in stores, people spending more time at home where they might have been less interested in clothing, and a shift in spending patterns towards other necessities such as food and cleaning products.

The upward effects this year came from a broad range of women's, men's and children's clothing and footwear.

7.47am BST

The ONS says the 12-month inflation rate for motor fuels has reached 17.9%, the largest rate since February 2017:

Average petrol prices stood at 127.2 pence per litre in May 2021, compared with 106.2 pence per litre a year earlier.

The UK was in the first national lockdown at this point last year and petrol prices were affected by reduced demand, reaching their lowest price in May 2020 for over four years.

The accelerating rate of inflation at 2.1% is a quicker rise in the cost of living than the average of 1.8% anticipated by economists. The price of petrol, up 17.9% over the year to May to 127.2p a litre, played a big role.

7.44am BST

7.43am BST

This chart show how inflation has moved sharply higher in recent months as the lockdown has eased.

Back in November 2020, the annual CPI rate fell to just 0.3%, and was 0.4% back in February.

7.38am BST

ONS chief economist Grant Fitzner says rising crude oil prices pushed up fuel costs, while there was less discounting of clothing than usual this year.

Commenting on today's figures, ONS Chief Economist Grant Fitzner said: (1/2) pic.twitter.com/EhQyLILi8x

. @GrantFitzner continued: (2/2) pic.twitter.com/QEl8Jr7Mxr

7.16am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Inflation across the UK has risen over the Bank of England's target for the first time in almost two years, as the cost of fuel, clothing and eating out jumped as the economy emerged from the Covid-19 lockdown.

Rising prices for clothing, motor fuel, recreational goods (particularly games and recording media), and meals and drinks consumed out resulted in the largest upward contributions to the change in the CPIH 12-month inflation rate between April and May 2021. #gbp #ONS

UK consumer price inflation at 2.1%- above the Bank of England's 2% target

@ONS data shows UK CPI #inflation rate rose to 2.1% in May 2021 & up from 1.5% in April

Inflation above the @bankofengland 2% target for the first time since July-19

May's inflation rise was largely driven by rising clothing & fuel prices as restrictions eased in the month pic.twitter.com/XBsQP0AJKU

Fed faces two-sided risks: tighten monetary policy too soon and tank the economy, or tighten too late and watch inflation ratchet higher, notes Greg Ip @WSJecon https://t.co/OpTmbk8fKw pic.twitter.com/QYE8xqtLK2

In the short-term, everything hinges on the Fed meeting, and what the central bank implies about its future policy. Policy settings themselves will not change, that's for certain. However, with the Fed publishing its economic projections and famous dot-plots, there is a keen interest in whether, at the margins, Fed board members may begin to see the need to raise rates and tighten policy.

The language in the statement will probably remain dovish and look to hose down concerns off tapering and rate hikes. But with hints that some within the Fed consider it time to at least start thinking about thinking about" tightening policy, where those dots fall may prove impactful to market pricing.

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