Inflation
Analysts suggest hotel demand around star’s Eras tour helped cost of living measure to defy forecasts of a fall
Wed 17 Jul 2024 10.53 CEST
The chances of an August interest rate cut have suffered a blow after higher hotel prices – blamed by some analysts on a “Taylor Swift effect” – meant progress in the UK’s fight against inflation stalled last month.
The government’s preferred measure of the cost of living remained at its 2% target for a second month in a row in June.
Sharp falls in clothing prices as retailers sought to offload summer stocks were offset by the rising cost of hotel stays, the Office for National Statistics (ONS) said.
UK inflation stays at 2%, defying forecasts of a further dip; pound hits $1.30 – business live
Other key measures of price prices also showed no improvement in June. Core inflation – which excludes food, energy, alcoholic drinks and tobacco – was unchanged at 3.5%. Inflation in the services sector – closely watched by the Bank of England – remained steady at 5.7%.
Hotel prices rose by 8.8% annually in June compared with a much smaller rise of 1.7% a year earlier. Analysts suggested this jump was partly generated by demand for stays around the eight UK dates of Taylor Swift’s global Eras tour.
Paul Dales of Capital Economics said: “Even though CPI inflation stayed exactly in line with the 2.0% target in June … it’s the stability of services inflation at 5.7% that’s the blow. And it looks as though only a small part of that may have been due to the temporary effects of Taylor Swift’s concerts. As a result, the chances of an interest rate cut in August have diminished a bit more.”
The inflation figures for June will be the last before the Bank of England decides on 1 August whether to cut interest rates – which stand at 5.25% – for the first time in a year. Financial markets trimmed their forecasts for the likelihood of an August cut down from a 50% to a 35% chance on Wednesday after the ONS data release.
Luke Bartholomew, the deputy chief economist at the fund manager Abrdn, said: “Today’s inflation report will keep the Bank of England’s August rate decision on a knife-edge. The strength of hotel price growth is suggestive of a Taylor Swift effect on prices, but policymakers will almost certainly look through this kind of dynamic.”
Although the consensus in the financial markets had been for a fall to 1.9% last month as measured by the consumer prices index (CPI), the ONS said inflation was still at its joint lowest level in nearly three years. The annual increase in the cost of living was last lower in April 2021, when it stood at 1.5%.
Prices overall rose by 0.1% last month, matching the increase in the same month of 2023. Food price inflation continued to ease, dropping from 1.7% to 1.5%, while clothing and footwear prices rose by 1.6% in the year to June compared with 3% in the year to May. Hotel and restaurant inflation rose from 5.8% to 6.3%.
Threadneedle Street’s rate setters on its nine-strong monetary policy committee expect inflation to rise to 2.5% in the second half of 2024 before falling back below the official 2% target.
The ONS chief economist, Grant Fitzner, said: “Hotel prices rose strongly while secondhand car costs fell but by less than this time last year. However, these were offset by falling clothing prices, with widespread sales driving down their cost.”
Darren Jones, the chief secretary to the Treasury, said: “It is welcome that inflation is at target, but we know that for families across Britain prices remain high. We face the legacy of 14 years of chaos and economic irresponsibility. That is why this government is taking the tough decisions now to fix the foundations so we can rebuild Britain and make every part of Britain better off.”
George Dibb, the associate director for economic policy at left-leaning thinktank the IPPR, said: “Today’s data confirms that inflation is well on its way towards normalisation. Some inflation drivers, such as core inflation, are still elevated, but the Bank of England’s policy stance remains too tight. Interest rates have been too high for too long and need to come down to not hamper growth.”
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Source link : https://amp.theguardian.com/business/article/2024/jul/17/uk-headline-inflation-rate-remains-unchanged-at-2
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Publish date : 2024-07-17 02:01:00
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