Inflation in U.K. stays steady in June

NEW

Inflation sticks exactly on target at 2% in June…

Food price inflation now 1.5%

Services inflation stick at 5.7%… core sticks at 3.5%

Goods disinflation -1.4%, largest fall since 2016

— Faisal Islam (@faisalislam) July 17, 2024

Inflation in Britain held steady in June as the Bank of England inches toward its first interest rate cut in years, and economists pondered whether a global pop star helped keep services prices higher. Consumer prices rose 2 percent from a year earlier, the Office for National Statistics said Wednesday, the same rate as in May and in line with the central bank’s target. Inflation was pulled down by cheaper clothing but offset by a jump in the price of hotel rooms. Food inflation also slowed, with prices rising just 1.5 percent compared with a year ago.

This morning's data from the @ONS shows that inflation (CPI) remained steady at 2.0 per cent in June.

But there were some worrying signs that domestic inflation is proving stickier than expected…

➡️ https://t.co/Ghx3eJLbck pic.twitter.com/PYT7J1Qk9S

— Resolution Foundation (@resfoundation) July 17, 2024

Investors are closely watching the inflation report and wage growth data expected on Thursday. They had been betting on a 50 percent chance the central bank would cut rates at its meeting in early August. However, the June inflation data came in slightly higher than expected. Core inflation, which excludes energy and food prices, was expected to dip but remained at 3.5 percent in June. Traders reduced their bets on an August rate cut, giving it about a 35 percent chance.

The key question for the @bankofengland, after today's @ONS inflation data, is whether domestic inflationary pressures have receded enough to cut rates.

Although high inflation is likely behind us, signs of sticky domestic inflation are making near-term rate cuts less likely. pic.twitter.com/5rMgREsLJ2

— Resolution Foundation (@resfoundation) July 17, 2024

Inflation in the services sector, which includes categories like hospitality, held steady at 5.7 percent in June, defying economists’ expectations for a fall.

Lol: '‘Taylor Swift effect’ blamed for UK inflation staying at 2% in June' https://t.co/QvkDzmEUnL

— Emilie K. M. Murphy (@emilieKMmurphy) July 17, 2024

June inflation holds steady in Britain

Wage costs make up a large proportion of services inflation, meaning once those costs start to rise, it can be hard to bring prices down. The increase in hotel prices in June — up almost 9 percent from the previous month — coincided with Taylor Swift’s tour landing in Britain. The tour has become something of an economic phenomenon, with potentially inflationary consequences. Swift performed 10 shows in Britain in June and is returning in August. Some economists have suggested that the ‘Taylor Swift effect’ prompted hotels and restaurants to raise their prices by more than usual in June. Laura Suter, director of personal finance at AJ Bell, noted, “Bank of England policymakers may be cursing Taylor Swift, as fans spending on hotel rooms and in restaurants during her Eras tour is likely to be one reason that prices rose in June, meaning that overall inflation flatlined at 2% rather than fell.” However, due to the date that the data was collected – around June 11 – it is hard to determine how big an impact individual events have on the monthly data. The fact that the inflation rate hit its target for two months in a row will be good news for policymakers at the Bank of England. But experts stressed that they will be more likely to consider the finer details of the inflation data rather than the overall rate. In particular, services inflation – which looks only at services-related categories such as hospitality, culture, and housing – remained higher than expectations last month. Luke Bartholomew, deputy chief economist for Abrdn, said the Bank’s next decision in August sits on a “knife edge” following the latest inflation data.