UK inflation unchanged at 2% in June

The UK's rate of inflation remained unchanged at 2% in June, as the Bank of England (BoE) considers whether to cut interest rates from their current 16-year high next month.

Prices rose at 2% in the year to June, unchanged from May and partly driven by hotel prices going up, the Office for National Statistics said. Financial markets had expected a fall to 1.9% last month.

In a blow to hopes of interest rate cuts, closely watched services inflation, which tracks categories such as hospitality, culture and housing, was unchanged at 5.7% in June, which was higher than economists’ estimates.

The largest upward contribution to inflation came from restaurants and hotels, with prices of hotels rising more than a year ago. The largest downward contribution came from clothing and footwear, with prices of garments falling in June after rising a year ago.

Read more: UK grocery inflation at lowest level in nearly three years

The core rate of inflation, which strips out energy, food, alcohol and tobacco, stayed at 3.5%.

The governor of the Bank of England, Andrew Bailey, stressed last month that policymakers need “to be sure that inflation will stay low”, which is why it decided to hold interest rates at 5.25% “for now”.

Darren Jones, 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 fourteen 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."

The inflation figures for June will be the last before the Bank of England decides whether to cut interest rates — which stand at 5.25% — for the first time in a year on 1 August.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "The data showed that inflation in Britain stagnated in June versus the expectation of a further easing.

"And higher-than-expected figures cooled down the expectation of an August rate cut from the Bank of England. But because the September Fed rate cut is already fully priced in, there is still room for a dovish BoE pricing into late summer."

An interest rate cut would provide some relief to mortgage holders and people paying back other forms of debt like loans or credit card bills.

Karen Barrett, CEO and founder of Unbiased, said: “Inflation remaining unmoved at 2% could be a sign that the Bank of England will remain cautious at the next base rate decision in August, especially with expectations that prices will again rise later this year.

The “honeymoon period” for inflation may not last as some economists predict it will rise as high 3% by the end of the year.

Read more: Is the Bank of England expected to cut interest rates in August?

Yael Selfin, chief economist at KPMG UK, said prices could move higher as a result of increasing energy bills in October “with the risk of headline inflation staying above target until autumn next year”.

"Core inflation is on course to stay elevated over the next 12 months, lowering the likelihood of a rate cut in August," she said.

"While the impact of high-profile entertainment events on hospitality and recreational services may be fleeting, the Bank of England is likely to pay more attention to elevated pay growth, potentially leading to higher inflation down the line."

Tom Stevenson, investment director at Fidelity International, said: “The decision on whether to cut interest rates from a 16-year high of 5.25% next month remains on a knife edge.”

Some economists have noted the Taylor Swift effect, likely to have held inflation at 2%.

Read more: Eurozone inflation creeps lower to 2.5%

Laura Suter, director of personal finance at AJ Bell, said: “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.

Paul Donovan, chief economist at UBS Global Wealth Management also highlighted how the Swifties kept inflation from falling.

"UK June inflation was broadly as expected, and on target. However, the popular music artist Taylor Swift had several UK concerts in June. Swifties need some place to stay. Hotel price increases were a very sizable part of June inflation. BoE Governor Bailey should ignore this effect (whether or not the governor is a Swiftie)," he said.

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