U.K. inflation remained steady at the Bank of England’s 2% target in June, according to Official National Statistics data released on Wednesday. The headline figure of 1.9% exceeded analyst expectations and matched the previous month’s reading of 2%.
Following the announcement, the value of the Sterling slightly increased, reaching $1.2977 by 7:21 a.m. London time. Services inflation, a key indicator for the BOE due to its significance in the U.K. economy, stayed at 5.7% in June. Core inflation, which excludes energy, food, alcohol, and tobacco, also remained unchanged at 3.5% from May.
The Office for National Statistics reported that higher prices in restaurants and hotels were the primary drivers of upward pressure on inflation, while clothing and footwear costs experienced the most significant decreases. Consumers are spending more on leisure activities during the summer, including cultural events and concerts featuring artists like Taylor Swift, Bruce Springsteen, Pink, and Sting touring the country.
Market speculation about a potential interest rate cut in August had been circulating as headline inflation showed signs of easing. However, expectations for a rate cut diminished after the latest data release. Jane Foley from Rabobank cautioned that the persistence of services inflation might lead BOE policymakers to proceed cautiously in their upcoming meeting.
Jonathan Haskel, a member of the BOE’s Monetary Policy Committee, advocated for keeping rates unchanged due to ongoing labor market pressures. BOE chief economist Huw Pill noted that the timing of a rate cut remains uncertain due to strong wage growth.
The BOE’s main interest rate has been at 5.25% since August 2023 when inflation was at 7.9%. The latest inflation data was released after the U.K.’s general election on July 4 but does not reflect any changes in government. Darren Jones, the new chief secretary to the Treasury, emphasized that prices are still too high and highlighted the government’s efforts to address economic challenges and rebuild the country for the better.
