UK Inflation Holds Steady at BoE Target, Borrowing Costs May Drop
Inflation in the UK stayed firm at the Bank of England’s 2% target for the year to June, official data revealed on Wednesday. This steady reading is pushing policymakers to consider slashing borrowing costs next month.
Restaurants and Hotels Drive Inflation, Sales Push Prices Down
The Office for National Statistics pinpointed restaurants and hotels as the biggest upward force behind inflation, with some experts crediting the economic buzz from Taylor Swift’s UK tour. Meanwhile, falling prices in clothing and footwear, thanks to widespread sales, put the brakes on inflation.
Most economists had predicted inflation would dip slightly to 1.9%, but the flat 2% reading surprised them.
Inflation at 2% for First Time Since 2021
The last time inflation sat at 2% was July 2021. Since then, prices soared due to pandemic-related supply chain chaos and a surge in energy costs following Russia’s invasion of Ukraine.
Market Tense Ahead of Bank of England Interest Rate Decision
All eyes are on whether the Bank of England will cut its main interest rate from 5.25% on August 1. Some policymakers worry that high inflation in the services sector and rising wages could rebound if rates drop too soon.
“Today’s inflation report keeps the Bank of England’s rate decision on a knife edge,” said Luke Bartholomew, deputy chief economist at asset management firm abrdn. “The ongoing stickiness of services inflation leaves the Bank wondering how long inflation will stay at the 2% target.”
The BoE, like the US Federal Reserve, hiked interest rates aggressively from near zero in late 2021 to tame inflation, which peaked above 11% in late 2022. Higher rates have eased inflation but stalled Britain’s economic growth since the pandemic rebound.
Starmer Vows to ‘Take Brakes Off Britain’ with Growth Plans
Prime Minister Keir Starmer stressed that driving UK economic growth is the top priority for his Labour government. On Wednesday, his team will unveil plans in the upcoming King’s Speech, promising to “take the brakes off Britain” and generate nationwide wealth through fresh growth initiatives.
