Inflation in United Kingdom stabilizes at 2 percent, provoking speculation on interest rates
Date
7/18/2024 4:14:31 AM
(MENAFN) UK inflation remained steady at the bank of England's target of 2 percent in June, as revealed by official national statistics data. This headline figure surpassed analysts' expectations, which had predicted a slight dip to 1.9 percent, matching the previous month's reading of 2 percent. Services inflation, a key indicator closely monitored by the Bank of England due to its significant impact on the UK Economy and its reflection of domestically generated price increases, also held steady at 5.7 percent in June. Core inflation, which excludes volatile items such as energy, food, alcohol, and tobacco, remained unchanged at 3.5 percent, mirroring May's figure.
This consistent inflation rate could prompt policymakers to consider reducing borrowing costs next month. Notably, the largest contributor to annual inflation was the restaurant and hotel sector, with some economists attributing this rise to the economic boost from Taylor Swift's UK tour. Conversely, clothing and footwear prices exerted a downward pressure on inflation, driven by widespread sales during the month. Most economists had anticipated a modest decline in inflation to 1.9 percent.
The last instance of 2 percent inflation in the UK was in July 2021, before a series of price increases driven by supply chain disruptions during the coronavirus pandemic and the subsequent surge in energy costs due to the war in Ukraine. The Bank of England is now expected to cut its main interest rate from 5.25 percent on August 1. However, some policymakers remain wary of persistent price rises in the crucial services sector and the rapid pace of wage increases, which could risk a resurgence in inflation if interest rates are lowered prematurely.
Luke Bartholomew, deputy chief economist at Aberdeen Asset Management, remarked that the inflation report places the Bank of England's interest rate decision in August "on a knife's edge." He emphasized that if services inflation continues to remain steady, the Bank of England will need to consider how long inflation will stay at the 2 percent target. This uncertainty underscores the delicate balance policymakers must maintain in their upcoming decisions.
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