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UK inflation stops falling, which makes it more likely that interest rates will go up a lot.

Inflation in the UK stayed at 8.7% in May, which was a surprise. This makes it more possible that the Bank of England will keep raising interest rates, possibly to a level not seen in more than 20 years.

The figures released by the Office for National Statistics on Wednesday went against predictions that inflation would slow down. Instead, it went from 8.4% a year ago to 8.4% now. Prices for entertainment and culture went up faster than in April, and even though food inflation went down, it was still high at more than 18%.

Flight prices went up more than a year ago and are higher than they usually are for May. Increases in the cost of used vehicles, concerts, and video games all had a role in keeping inflation at a high level. Grant Fitzner, the head economist at ONS

Core inflation, which takes out the unpredictable costs of food and energy and gives a better picture of how prices are moving overall, went up last month and hit a 31-year high of 7.1%.

Neil Shearing, chief economist at Capital Economics, pointed out that this makes the UK different from other strong economies, like the US and the 20 countries that use the euro, where core inflation has started to go down.

“Inflation seems to have affected the job market and wage setting in the UK more than anywhere else,” he said, adding that it was now more likely that the Bank of England would raise interest rates by half a percentage point on Thursday instead of a quarter point as had been expected.

Politically, it’s bad for UK Prime Minister Rishi Sunak, who has pledged to cut inflation in half this year to around 5%; economically, it’s bad for millions of Britons struggling with a cost-of-living crisis and facing skyrocketing mortgage payments due to interest rates on two-year loans now being above 6%.

Since the beginning of May, the interest rate on the average UK mortgage, which is a two-year fixed-rate loan, has been going up. More increases are likely because banks expect their own borrowing costs to go up.

“Bomb of debt”

Craig Erlam, a senior market expert at the trading platform OANDA, said that the markets now expect the main interest rate from the central bank to reach 6% in early 2019. That would be the highest amount since the beginning of 2000. Erlam said that it “could be very bad and raises the chance that the economy will break under the pressure.”

UK Finance, a group of banks and other financial service providers, says that 800,000 fixed-rate mortgages will end in the second half of this year. This raises the possibility that borrowers will have to pay much more when they renew.

People are worried about what has been called “the mortgage bomb about to go off,” said UK lawmaker Jake Berry in parliament on Tuesday.

As a result, the cost of borrowing money for the government of the United Kingdom has increased as a result of rising rates due to persistently high inflation. The British government’s debt, which stands at £2.6 trillion ($3.3 trillion) as of Wednesday’s official data, is now higher than the country’s GDP. The debt-to-GDP number hasn’t been above 100% since 1961.

Before May, inflation had been going down for two months in a row.

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